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VALMONT INDUSTRIES INC - Quarter Report: 2019 September (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
Form 10-Q
(Mark One)
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission file number 1-31429
_____________________________________
Valmont Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware
47-0351813
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
One Valmont Plaza,
 
Omaha,
Nebraska
 68154-5215
 (Address of Principal Executive Offices)
 (Zip Code)

(402) 963-1000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Symbol
 
Name of exchange on which registered
Common Stock $1.00 par value
 
VMI
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non‑accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No x
21,525,585
Outstanding shares of common stock as of October 25, 2019


VALMONT INDUSTRIES, INC.

INDEX TO FORM 10-Q
 
 
Page No.
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
ended September 28, 2019 and September 29, 2018
 
 
 
and thirty-nine weeks ended September 28, 2019 and September 29, 2018
 
Condensed Consolidated Balance Sheets as of September 28, 2019 and December 29,
 
 
2018
 
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended
 
 
September 28, 2019 and September 29, 2018

 
Condensed Consolidated Statements of Shareholders' Equity for the thirteen and
 
 
thirty-nine weeks ended September 28, 2019 and September 29, 2018
 
Notes to Condensed Consolidated Financial Statements
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
 
 
 
 
 
 
 
 
 


2



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
Product sales
$
605,439

 
$
597,469

 
$
1,829,919

 
$
1,816,597

Services sales
84,901

 
81,223

 
253,431

 
243,184

Net sales
690,340

 
678,692

 
2,083,350

 
2,059,781

Product cost of sales
457,750

 
460,547

 
1,393,236

 
1,389,832

Services cost of sales
56,504

 
53,805

 
168,485

 
161,370

Total cost of sales
514,254

 
514,352

 
1,561,721

 
1,551,202

Gross profit
176,086

 
164,340

 
521,629

 
508,579

Selling, general and administrative expenses
112,223

 
110,200

 
338,950

 
326,809

Impairment of goodwill and intangible assets
—

 
15,780

 
—

 
15,780

Operating income
63,863

 
38,360

 
182,679

 
165,990

Other income (expenses):
 
 
 
 
 
 
 
Interest expense
(9,976
)
 
(10,954
)
 
(29,971
)
 
(33,819
)
Interest income
969

 
1,000

 
2,815

 
3,713

Gain on investments (unrealized)
402

 
1,068

 
4,754

 
1,146

Costs associated with refinancing of debt
—

 
(14,820
)
 
—

 
(14,820
)
Loss from divestiture of grinding media business
—

 
—

 
—

 
(6,084
)
Other
768

 
1,428

 
1,938

 
2,053

 
(7,837
)
 
(22,278
)
 
(20,464
)
 
(47,811
)
Earnings before income taxes
56,026

 
16,082

 
162,215

 
118,179

Income tax expense (benefit):
 
 
 
 
 
 
 
Current
12,375

 
10,777

 
33,053

 
35,214

Deferred
1,388

 
(1,686
)
 
7,098

 
814

 
13,763

 
9,091

 
40,151

 
36,028

Net earnings
42,263

 
6,991

 
122,064

 
82,151

Less: Earnings attributable to noncontrolling interests
(2,119
)
 
(2,543
)
 
(4,042
)
 
(5,462
)
Net earnings attributable to Valmont Industries, Inc.
$
40,144

 
$
4,448

 
$
118,022

 
$
76,689

Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.86

 
$
0.20

 
$
5.43

 
$
3.42

Diluted
$
1.85

 
$
0.20

 
$
5.41

 
$
3.40



See accompanying notes to condensed consolidated financial statements.

3


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
Net earnings
42,263

 
6,991

 
122,064

 
82,151

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Unrealized translation gain (loss)
(23,781
)
 
(10,632
)
 
(20,466
)
 
(50,781
)
     Realized loss on divestiture of grinding media business recorded in earnings
—

 
—

 
—

 
9,203

         Gain (loss) on hedging activities:
 
 
 
 
 
 
 
      Net investment hedges
2,580

 
1,223

 
3,360

 
2,830

Realized loss on net investment hedge for grinding media business recorded in earnings
—

 
—

 
—

 
1,215

Amortization cost included in interest expense
(16
)
 
395

 
(48
)
 
439

     Deferred loss on interest rate hedges
—

 
—

 
—

 
(2,467
)
     Commodity hedges
(21
)
 
226

 
(2,130
)
 
1,571

     Realized gain (loss) on commodity hedges recorded in earnings
1,329

 
(717
)
 
1,329

 
(717
)
     Cross currency swaps
5,443

 
(2,037
)
 
3,771

 
(2,037
)
Other comprehensive income
(14,466
)
 
(11,542
)
 
(14,184
)
 
(40,744
)
Comprehensive income
27,797

 
(4,551
)
 
107,880

 
41,407

Comprehensive income attributable to noncontrolling interests
(1,297
)
 
(2,389
)
 
(3,390
)
 
(8,250
)
Comprehensive income attributable to Valmont Industries, Inc.
$
26,500

 
$
(6,940
)
 
$
104,490

 
$
33,157













See accompanying notes to condensed consolidated financial statements.

4


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
September 28,
2019
 
December 29,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
327,200

 
$
313,210

Receivables, net
501,215

 
483,963

Inventories
377,300

 
383,566

Contract asset - costs and profits in excess of billings
120,376

 
112,525

Prepaid expenses and other assets
50,420

 
42,800

    Refundable income taxes
11,893

 
4,576

        Total current assets
1,388,404

 
1,340,640

Property, plant and equipment, at cost
1,233,762

 
1,160,865

Less accumulated depreciation and amortization
685,394

 
646,873

Net property, plant and equipment
548,368

 
513,992

Goodwill
421,679

 
385,207

Other intangible assets, net
177,734

 
175,956

Other assets
189,257

 
114,479

Total assets
$
2,725,442

 
$
2,530,274

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
745

 
$
779

Notes payable to banks
19,324

 
10,678

Accounts payable
197,535

 
218,115

Accrued employee compensation and benefits
78,540

 
79,291

Accrued expenses
226,715

 
91,942

    Dividends payable
8,088

 
8,230

Total current liabilities
530,947

 
409,035

Deferred income taxes
43,778

 
43,489

Long-term debt, excluding current installments
764,524

 
741,822

Defined benefit pension liability
121,282

 
143,904

Operating lease liabilities
78,790

 
—

Deferred compensation
43,837

 
46,107

Other noncurrent liabilities
11,113

 
10,394

Shareholders’ equity:
 
 
 
Common stock of $1 par value -
 
 
 
Authorized 75,000,000 shares; 27,900,000 issued
27,900

 
27,900

Retained earnings
2,119,843

 
2,027,596

Accumulated other comprehensive loss
(316,717
)
 
(303,185
)
Treasury stock
(744,335
)
 
(692,549
)
Total Valmont Industries, Inc. shareholders’ equity
1,086,691

 
1,059,762

Noncontrolling interest in consolidated subsidiaries
44,480

 
75,761

Total shareholders’ equity
1,131,171

 
1,135,523

Total liabilities and shareholders’ equity
$
2,725,442

 
$
2,530,274


See accompanying notes to condensed consolidated financial statements.

5


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Thirty-nine weeks ended
 
September 28,
2019
 
September 29,
2018
Cash flows from operating activities:
 
 
 
Net earnings
$
122,064

 
$
82,151

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
Depreciation and amortization
60,424

 
62,018

Noncash loss on trading securities
(48
)
 
(62
)
Impairment of property, plant and equipment
—

 
4,197

Impairment of goodwill & intangible assets
—

 
15,780

Loss on divestiture of grinding media business
—

 
6,084

Stock-based compensation
8,889

 
8,076

Defined benefit pension plan benefit
(382
)
 
(1,713
)
Contribution to defined benefit pension plan
(17,426
)
 
(1,555
)
        Gain on sale of property, plant and equipment
(465
)
 
(353
)
Deferred income taxes
7,098

 
814

Changes in assets and liabilities:
 
 
 
Receivables
(21,117
)
 
(612
)
Inventories
5,348

 
(33,004
)
Prepaid expenses and other assets
(14,451
)
 
(18,486
)
Contract asset - costs and profits in excess of billings
(7,850
)
 
(33,029
)
Accounts payable
(19,256
)
 
(19,069
)
Accrued expenses
129,901

 
7,288

Other noncurrent liabilities
(4,563
)
 
(1,249
)
Income taxes refundable
(8,936
)
 
(9,223
)
Net cash flows from operating activities
239,230

 
68,053

Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(71,981
)
 
(48,919
)
Proceeds from sale of assets
1,325

 
64,786

Acquisitions, net of cash acquired
(81,841
)
 
(125,309
)
    Settlement of net investment hedges
11,184

 
(1,621
)
Other, net
2,117

 
(2,371
)
Net cash flows from investing activities
(139,196
)
 
(113,434
)
Cash flows from financing activities:
 
 
 
Proceeds from short-term agreements
9,284

 
3,217

Proceeds from long-term borrowings
31,000

 
236,936

Principal payments on long-term borrowings
(10,578
)
 
(252,952
)
Settlement of financial derivatives
—

 
(2,467
)
Debt issuance costs
—

 
(2,322
)
Dividends paid
(24,554
)
 
(25,415
)
Dividends to noncontrolling interest
(6,549
)
 
(5,737
)
Purchase of noncontrolling interest
(27,845
)
 
(5,510
)
Purchase of treasury shares
(55,172
)
 
(86,919
)
Proceeds from exercises under stock plans
3,211

 
6,376

Purchase of common treasury shares—stock plan exercises
(1,456
)
 
(1,914
)
Net cash flows from financing activities
(82,659
)
 
(136,707
)
Effect of exchange rate changes on cash and cash equivalents
(3,385
)
 
(15,095
)
Net change in cash and cash equivalents
13,990

 
(197,183
)
Cash, cash equivalents, and restricted cash—beginning of year
313,210

 
492,805

Cash, cash equivalents, and restricted cash—end of period
$
327,200

 
$
295,622

See accompanying notes to condensed consolidated financial statements.

6

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss)
 
Treasury
stock
 
Noncontrolling
interest in
consolidated
subsidiaries
 
Total
shareholders’
equity
Balance at June 30, 2018
$
27,900

 
$
—

 
$
2,023,919

 
$
(311,166
)
 
$
(628,487
)
 
$
37,658

 
$
1,149,824

Net earnings
—

 
—

 
4,448

 
—

 
—

 
2,543

 
$
6,991

Other comprehensive income (loss)
—

 
—

 
—

 
(11,388
)
 
—

 
(154
)
 
$
(11,542
)
Cash dividends declared ($0.375 per share)
—

 
—

 
(8,311
)
 
—

 
—

 
—

 
$
(8,311
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(885
)
 
$
(885
)
Addition of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
37,369

 
$
37,369

Purchase of treasury shares; 309,198 shares acquired
—

 
—

 
—

 
—

 
(42,920
)
 
—

 
$
(42,920
)
Stock plan exercises; 1,033 shares acquired
—

 
—

 
—

 
—

 
(145
)
 
—

 
$
(145
)
Stock options exercised; 6,191 shares issued
—

 
(2,713
)
 
2,482

 
—

 
896

 
—

 
$
665

Stock option expense
—

 
987

 
—

 
—

 
—

 
—

 
$
987

Stock awards; 82 shares issued
—

 
1,726

 
—

 
—

 
(11
)
 
—

 
$
1,715

Balance at September 29, 2018
$
27,900

 
$
—

 
$
2,022,538

 
$
(322,554
)
 
$
(670,667
)
 
$
76,531

 
$
1,133,748

Balance at June 29, 2019
$
27,900

 
$
—

 
$
2,085,594

 
$
(303,072
)
 
$
(728,680
)
 
$
45,272

 
$
1,127,014

Net earnings
—

 
—

 
40,144

 
—

 
—

 
2,119

 
$
42,263

Other comprehensive income (loss)
—

 
—

 
—

 
(13,645
)
 
—

 
(821
)
 
$
(14,466
)
Cash dividends declared ($0.375 per share)
—

 
—

 
(8,085
)
 
—

 
—

 
—

 
$
(8,085
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(2,090
)
 
$
(2,090
)
Purchase of treasury shares; 126,734 shares acquired
—

 
—

 
—

 
—

 
(16,822
)
 
—

 
$
(16,822
)
Stock plan exercises; 4,403 shares acquired
—

 
—

 
—

 
—

 
(629
)
 
—

 
$
(629
)
Stock options exercised; 12,856 shares issued
—

 
(2,514
)
 
2,190

 
—

 
1,791

 
—

 
$
1,467

Stock option expense
—

 
600

 
—

 
—

 
—

 
—

 
$
600

Stock awards; 223 shares issued
—

 
1,914

 
—

 
—

 
5

 
—

 
$
1,919

Balance at September 28, 2019
$
27,900

 
$
—

 
$
2,119,843

 
$
(316,717
)
 
$
(744,335
)
 
$
44,480

 
$
1,131,171









See accompanying notes to the condensed consolidated financial statements.






VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss)
 
Treasury
stock
 
Noncontrolling
interest in
consolidated
subsidiaries
 
Total
shareholders’
equity
Balance at December 30, 2017
$
27,900

 
$
—

 
$
1,954,344

 
$
(279,022
)
 
$
(590,386
)
 
$
38,959

 
$
1,151,795

Net earnings
—

 
—

 
76,689

 
—

 
—

 
5,462

 
82,151

Other comprehensive income (loss)
—

 
—

 
—

 
(43,532
)
 
—

 
2,788

 
(40,744
)
Cash dividends declared ($1.125 per share)
—

 
—

 
(25,204
)
 
—

 
—

 
—

 
(25,204
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(5,737
)
 
(5,737
)
Cumulative impact of ASC 606 adoption
—

 
—

 
9,771

 
—

 
—

 
—

 
9,771

Impact of ASU 2016-16 adoption
—

 
—

 
1,038

 
—

 
—

 
—

 
1,038

Addition of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
40,569

 
40,569

Purchase of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
(5,510
)
 
(5,510
)
Purchase of treasury shares; 614,454 shares acquired
—

 
—

 
—

 
—

 
(86,919
)
 
—

 
(86,919
)
Stock plan exercises; 12,971 shares acquired
—

 
—

 
—

 
—

 
(1,914
)
 
—

 
(1,914
)
Stock options exercised; 52,404 shares issued
—

 
(7,172
)
 
5,900

 
—

 
7,648

 
—

 
6,376

Stock option expense
—

 
3,138

 
—

 
—

 
—

 
—

 
3,138

Stock awards; 7,774 shares issued
—

 
4,034

 
—

 
—

 
904

 
—

 
4,938

Balance at September 29, 2018
$
27,900

 
$
—

 
$
2,022,538

 
$
(322,554
)
 
$
(670,667
)
 
$
76,531

 
$
1,133,748

Balance at December 29, 2018
$
27,900

 
$
—

 
$
2,027,596

 
$
(303,185
)
 
$
(692,549
)
 
$
75,761

 
$
1,135,523

Net earnings
—

 
—

 
118,022

 
—

 
—

 
4,042

 
122,064

Other comprehensive income (loss)
—

 
—

 
—

 
(13,532
)
 
—

 
(652
)
 
(14,184
)
Cash dividends declared ($1.125 per share)
—

 
—

 
(24,424
)
 
—

 
—

 
—

 
(24,424
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(6,549
)
 
(6,549
)
Purchase of noncontrolling interest
—

 
277

 
—

 
—

 
—

 
(28,122
)
 
(27,845
)
Impact of ASC 842 adoption
—

 
—

 
(8,886
)
 
—

 
—

 
—

 
(8,886
)
Purchase of treasury shares; 433,463 shares acquired
—

 
—

 
—

 
—

 
(55,172
)
 
—

 
(55,172
)
Stock plan exercises; 10,499 shares acquired
—

 
—

 
—

 
—

 
(1,456
)
 
—

 
(1,456
)
Stock options exercised; 28,493 shares issued
—

 
(7,756
)
 
7,535

 
—

 
3,432

 
—

 
3,211

Stock option expense
—

 
2,056

 
—

 
—

 
—

 
—

 
2,056

Stock awards; 10,550 shares issued
—

 
5,423

 
—

 
—

 
1,410

 
—

 
6,833

Balance at September 28, 2019
$
27,900

 
$
—

 
$
2,119,843

 
$
(316,717
)
 
$
(744,335
)
 
$
44,480

 
$
1,131,171





See accompanying notes to condensed consolidated financial statements.

7

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of September 28, 2019, the Condensed Consolidated Statements of Earnings, Comprehensive Income, and Shareholders' Equity for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018, and the Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of September 28, 2019 and for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2018. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 29, 2018 with the exception of the lease accounting policy which changed from adopting Accounting Standards Update ("ASU") 2016-02 and is discussed in footnote 9. The results of operations for the period ended September 28, 2019 are not necessarily indicative of the operating results for the full year.
Inventories
Approximately 38% and 37% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method or market as of September 28, 2019 and December 29, 2018. All other inventory is valued at the lower of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured and finished goods. The excess of replacement cost of inventories over the LIFO value is approximately $48,080 and $53,619 at September 28, 2019 and December 29, 2018, respectively.
Inventories consisted of the following:
 
September 28,
2019
 
December 29,
2018
Raw materials and purchased parts
$
172,064

 
$
190,115

Work-in-process
34,696

 
35,566

Finished goods and manufactured goods
218,620

 
211,504

Subtotal
425,380

 
437,185

Less: LIFO reserve
48,080

 
53,619

 
$
377,300

 
$
383,566




8

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Earnings before income taxes for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018, were as follows:    
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
2019
 
2018
 
2019
 
2018
United States
$
44,897

 
$
15,596

 
$
134,417

 
$
99,697

Foreign
11,129

 
486

 
27,798

 
18,482

 
$
56,026

 
$
16,082

 
$
162,215

 
$
118,179


Pension Benefits

The Company incurs expenses in connection with the Delta Pension Plan ("DPP"). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. In order to measure expense and the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits.

The components of the net periodic pension (benefit) expense for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018 were as follows:
 
Thirteen weeks ended
 
Thirty-nine weeks ended
Net periodic (benefit) expense:
2019
 
2018
 
2019
 
2018
Interest cost
$
4,075

 
$
4,400

 
$
12,602

 
$
13,602

Expected return on plan assets
(4,815
)
 
(5,704
)
 
(14,893
)
 
(17,633
)
Amortization of actuarial loss
617

 
750

 
1,909

 
2,318

Net periodic expense (benefit)
$
(123
)
 
$
(554
)
 
$
(382
)
 
$
(1,713
)

Stock Plans

The Company maintains stock‑based compensation plans approved by the shareholders, which provide that the Human Resource Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and bonuses of common stock. At September 28, 2019, 1,403,051 shares of common stock remained available for issuance under the plans.
Under the plans, the exercise price of each option equals the closing market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three years to six years or on the grant's fifth anniversary. Expiration of grants is seven years from the date of grant. Restricted stock units and awards generally vest in equal installments over three years beginning on the first anniversary of the grant.
The Company's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock options and restricted stock for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018, respectively, were as follows:

9

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
2019
 
2018
 
2019
 
2018
Compensation expense
$
2,519

 
$
2,702

 
$
8,889

 
$
8,076

Income tax benefits
630

 
676

 
2,222

 
2,019


Fair Value
The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ASC 820 establishes a three‑level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan of $35,144 ($37,516 at December 29, 2018) represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification ("ASC") 320, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their deferred compensation at any time.     The Company's ownership of shares in Delta EMD Pty. Ltd. (JSE:DTA) is also classified as trading securities. The shares are valued at $80 and $2,508 as of September 28, 2019 and December 29, 2018, respectively, which is the estimated fair value. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.
Derivative Financial Instruments: The fair value of foreign currency and commodity forward contracts, and cross currency contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.





10

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
 
Fair Value Measurement Using:
 
Carrying Value September 28, 2019
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Trading Securities
$
35,224

 
$
35,224

 
$
—

 
$
—

Derivative financial instruments, net
9,408

 
—

 
9,408

 
—

 
 
 
Fair Value Measurement Using:
 
Carrying Value December 29, 2018
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Trading Securities
$
40,024

 
$
40,024

 
$
—

 
$
—

Derivative financial instruments, net
9,147

 
—

 
9,147

 
—


Long-Lived Assets
The Company's other non-financial assets include goodwill and other intangible assets, which are classified as Level 3 items. These assets are measured at fair value on a non-recurring basis as part of annual impairment testing. Note 5 to these condensed consolidated financial statements contain additional information related to goodwill and intangible asset impairments.

Comprehensive Income
Comprehensive income includes net earnings, currency translation adjustments, certain derivative-related activity and changes in net actuarial gains/losses from a pension plan. Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rates in effect on the balance sheet dates. Accumulated other comprehensive income (loss) consisted of the following at September 28, 2019 and December 29, 2018:
 
Foreign Currency Translation Adjustments
 
Gain/(Loss) on Hedging Activities
 
Defined Benefit Pension Plan
 
Accumulated Other Comprehensive Loss
Balance at December 29, 2018
$
(230,261
)
 
$
11,171

 
$
(84,095
)
 
$
(303,185
)
Current-period comprehensive income (loss)
(19,814
)
 
6,282

 
—

 
(13,532
)
Balance at September 28, 2019
$
(250,075
)
 
$
17,453

 
$
(84,095
)
 
$
(316,717
)







11

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company determines the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer. Contracts with customers for all businesses are fixed-price with sales tax excluded from revenue, and do not include variable consideration. Discounts included in contracts with customers, typically early pay discounts, are recorded as a reduction of net sales in the period in which the sale is recognized. Contract revenues are classified as product when the performance obligation is related to the manufacturing of goods. Contract revenues are classified as service when the performance obligation is the performance of a service. Service revenue is primarily related to the Coatings segment.
Customer acceptance provisions exist only in the design stage of our products and acceptance of the design by the customer is required before the project is manufactured and delivered to the customer. The Company is not entitled to any compensation solely based on design of the product and does not recognize revenue associated with the design stage. There is one performance obligation for revenue recognition. No general rights of return exist for customers once the product has been delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties for any of its products.
Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is being recognized over time. With the exception of the Utility segment and the wireless communication structures product line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company elected the practical expedient to not disclose the partially satisfied performance obligation at the end of the period when the contract has an original expected duration of one year or less. In addition, the Company elected the practical expedient to not adjust the amount of consideration to be received in a contract for any significant financing component if payment is expected within twelve months of transfer of control of goods or services; the Company expects all consideration to be received in one year or less at contract inception.
Segment and Product Line Revenue Recognition
The global Utility segment revenues are derived from manufactured steel and concrete structures for the North America utility industry and offshore and other complex structures used in energy generation and distribution outside of the United States. Steel and concrete utility structures are engineered to customer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences. The continuous transfer of control to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date plus a reasonable profit as the products do not have an alternative use to the Company. Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment. For our steel and concrete utility and wireless communication structure product lines, we generally recognize revenue on an inputs basis, using total production hours incurred to-date for each order as a percentage of total hours estimated to produce the order. The completion percentage is applied to the order’s total revenue and total estimated costs to determine reported revenue, cost of goods sold and gross profit. Production of an order, once started, is typically completed within three months. Revenue from the offshore and other complex structures business is also recognized using an inputs method, based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. External sales agents are used in certain sales of steel and concrete structures; the Company has chosen to use the practical expedient to expense estimated commissions owed to third parties by recognizing them proportionately as the goods are manufactured.
The global ESS segment revenues are derived from the manufacture and distribution of engineered metal, composite structures and components for lighting and traffic and roadway safety, engineered access systems, and wireless communication. For the lighting and traffic and roadway safety product lines, revenue is recognized upon shipment or delivery of goods to the customer depending on contract terms, which is the same point in time that the customer is billed. For Access Systems, revenue is generally recognized upon delivery of goods to the customer which is the same point in time that the customer is billed. The wireless communication product line has large regional customers who have unique product

12

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
specifications for communication structures. When the customer contract includes a cancellation clause that would require them to pay for work completed plus a reasonable margin if an order was canceled, revenue is recognized over time based on hours worked as a percent of total estimated hours to complete production. For the remaining wireless communication product line customers which do not provide a contractual right to bill for work completed on a canceled order, revenue is recognized upon shipment or delivery of the goods to the customer which is the same point in time that the customer is billed.
The global Coatings segment revenues are derived by providing coating services to customers’ products, which include galvanizing, anodizing, and powder coating. Revenue is recognized once the coating service has been performed and the goods are ready to be picked up or delivered to the customer which is the same time that the customer is billed.
The global Irrigation segment revenues are derived from the manufacture of agricultural irrigation equipment and related parts and services for the agricultural industry and tubular products for industrial customers. Revenue recognition for the irrigation segment is generally upon shipment of the goods to the customer which is the same point in time that the customer is billed. The remote monitoring subscription services are primarily billed annually and revenue is recognized on a straight-line basis over the subsequent twelve months.
Disaggregation of revenue by product line is disclosed in the Segment footnote. A breakdown by segment of revenue recognized over time and at a point in time for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018 is as follows:
 
Point in Time
 
Over Time
 
Point in Time
 
Over Time
 
Thirteen weeks ended September 28, 2019
 
Thirteen weeks ended September 28, 2019
 
Thirty-nine weeks ended September 28, 2019
 
Thirty-nine weeks ended September 28, 2019
Utility Support Structures
$
3,418

 
$
200,778

 
$
43,642

 
$
612,821

Engineered Support Structures
252,501

 
13,993

 
713,574

 
38,454

Coatings
76,922

 
—

 
228,242

 
—

Irrigation
139,093

 
3,635

 
436,907

 
9,710

  Total
$
471,934

 
$
218,406

 
$
1,422,365

 
$
660,985


 
Point in Time
 
Over Time
 
Point in Time
 
Over Time
 
Thirteen weeks ended September 29, 2018
 
Thirteen weeks ended September 29, 2018
 
Thirty-nine weeks ended September 29, 2018
 
Thirty-nine weeks ended September 29, 2018
Utility Support Structures
$
6,090

 
$
211,853

 
$
6,090

 
$
618,243

Engineered Support Structures
235,948

 
12,483

 
680,863

 
29,525

Coatings
74,547

 
—

 
217,544

 
—

Irrigation
134,710

 
3,061

 
475,744

 
8,692

Other
—

 
—

 
23,080

 
—

  Total
$
451,295

 
$
227,397

 
$
1,403,321

 
$
656,460


Both steel and concrete utility customers are generally invoiced upon shipment or delivery of the goods to the customer's specified location and there are normally no up-front or progress payments. The offshore and complex steel structures business invoices customers a number of ways including advanced billings, progress billings, and billings upon shipment.


13

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

At September 28, 2019 and December 29, 2018, the contract liability for revenue recognized over time was $123,878 and $4,906, respectively. The contract liability is included in Accrued Expenses on the condensed consolidated balance sheets.

During the thirteen and thirty-nine weeks ended September 28, 2019, the Company recognized $314 and $2,242 of revenue that was included in the liability as of December 29, 2018. In the thirteen and thirty-nine weeks ended September 29, 2018, the Company recognized $0 and $4,456 of revenue that was included in the liability as of December 30, 2017. The revenue recognized was due to applying advance payments received for projects completed during the period.
Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which provides revised guidance on leases requiring lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The Company implemented a lease management tool to support the new reporting requirements and adopted the ASU on the first day of fiscal 2019. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet for all classes of underlying assets. The Company elected to not recast its comparative periods in transition (the "Comparatives Under 840 Option") as allowed under ASU 2018-11. The new standard did not have an impact in the condensed consolidated statements of earnings; footnote 9 provides the impact on the condensed consolidated balance sheet including the transition adoption adjustment recorded to retained earnings.


(2) ACQUISITIONS
On May 13, 2019, the Company acquired the assets of Connect-It Wireless, Inc. ("Connect-It") for $6,034 in cash. Connect-It operates in Florida and is a manufacturer and distributor of wireless site components and safety products. In the preliminary purchase price allocation, goodwill of $3,299 and customer relationships of $828 were recorded and the remainder is net working capital. A portion of the goodwill is deductible for tax purposes. Connect-It is included in the ESS segment and was acquired to expand the Company's wireless component distribution network. The Company expects the purchase price allocation to be finalized in the fourth quarter of 2019, after all management reviews have been completed.
On February 11, 2019, the Company acquired the outstanding shares of United Galvanizing ("United"), a provider of coatings services for $26,000 in cash. The agreed upon purchase price was $28,000, with $2,000 being contingent on seller representations and warranties that will be settled within 12 months of the acquisition date. The acquisition of United, located in Houston, Texas further expands the Company's galvanizing footprint in North America and will be reported in the Coatings segment. The preliminary fair values assigned were $11,715 for goodwill, $4,034 for customer relationships, trade name of $894, $11,016 for property, plant, and equipment, and the remainder is net working capital. Goodwill is not deductible for tax purposes and the customer relationship will be amortized over 10 years. The trade name has an indefinite life. The Company expects the purchase price allocation to be finalized in the fourth quarter of 2019, once the contingent payment is settled and management reviews are complete.
(2) ACQUISITIONS (Continued)

14

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


On December 31, 2018, the Company acquired the assets of Larson Camouflage ("Larson"), an industry leading provider of architectural and camouflage concealment solutions for the wireless telecommunication market for $31,106 in cash. The agreed upon purchase price was $34,562, with 10% being held back for seller representations and warranties and will be settled within 12 months of the acquisition date. Larson was acquired to grow our product offerings in the wireless communication market and will be reported in the ESS segment. The preliminary fair values assigned were $17,050 for customer relationships, $14,519 for goodwill, $1,151 for property, plant, and equipment and the remainder is net working capital. Goodwill is deductible for tax purposes and the customer relationships will be amortized over 12 years. The Company expects the purchase price allocation to be finalized in the fourth quarter of 2019, once the hold back payment is settled and management reviews are complete.
On October 18, 2018, the Company acquired CSP Coatings Systems of Auckland, New Zealand, a provider of a wide range of coatings services for $17,711 in cash. The acquisition further strengthens the Company's Asia-Pacific market position and is reported in the Coatings segment. The fair values assigned were $7,373 to property, plant, and equipment, $3,113 for customer relationships, $5,120 for goodwill, with the remainder net working capital. Goodwill is not deductible for tax purposes and the customer relationships will be amortized over 10 years. The purchase price allocation was finalized in the second quarter of 2019.
On August 3, 2018, the Company purchased approximately 72% of the outstanding shares of Walpar, LLC ("Walpar") for $57,805 in cash. Walpar is an industry leader in the design, engineering and manufacturing of overhead sign structures for the North America transportation market. Walpar is located in Birmingham, Alabama and its operations are reported in the ESS segment. The transaction was funded with cash on hand. The acquisition of Walpar was completed to expand the Company's product offering in the sign structure market. Customer relationships are amortized over 12 years and the trade name has an indefinite life. Goodwill is not deductible for tax purposes.
In January 2019, the 28% non-controlling interest shares of Walpar, LLC were acquired for $23,082. During the third quarter, the Company finalized its purchase price allocation including its assessment of the value of intangibles on the opening balance sheet. As a result of updated cash flow projections it was determined that a $3,500 reduction in customer relationships, along with an offsetting increase in goodwill less deferred tax, was necessary to adjust the preliminary allocation of fair value to assets acquired and liabilities assumed. The following table summarizes the fair values of the assets acquired and liabilities assumed of Walpar as of the date of acquisition:
 
 
At August 3, 2018
Current assets
 
$
13,210

Customer relationships
 
28,500

Trade name
 
3,500

Goodwill
 
45,453

     Total fair value of assets acquired
 
$
90,663

Current liabilities
 
2,197

Deferred taxes
 
7,579

     Total fair value of liabilities assumed
 
$
9,776

Non-controlling interest
 
23,082

     Net assets acquired
 
$
57,805




15

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


On August 3, 2018, the Company acquired 75% of the outstanding shares of Convert Italia SpA ("Convert") for $43,504 in cash. In the second quarter of 2019, the Company paid the former owners approximately $18,700 additional purchase price which was reflected in the contingent consideration liability on the fair value of assets and liabilities assumed on acquisition. Convert is a designer and provider of engineered solar tracker solutions that is headquartered in Italy, with offices in Brazil and Argentina. The Company acquired Convert to grow market adjacencies in the Utility Support Structures segment.
    

16

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(2) ACQUISITIONS (Continued)
Patents and proprietary technology will be amortized over 15 years and the trade name has an indefinite life. Goodwill is not deductible for tax purposes. The fair value measurement process and purchase price allocation was finalized in the third quarter of 2019. The following table summarizes the fair values of the assets acquired and liabilities assumed of Convert as of the date of acquisition:
 
 
At August 3, 2018
Current assets
 
$
18,349

Other assets
 
3,166

Patent and Proprietary Technology
 
16,554

Trade name
 
8,701

Goodwill
 
42,169

     Total fair value of assets acquired
 
$
88,939

Current liabilities
 
5,376

Contingent consideration liability
 
19,497

Deferred taxes
 
6,061

     Total fair value of liabilities assumed
 
$
30,934

Non-controlling interest
 
14,501

     Net assets acquired
 
$
43,504


The Company's condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended September 28, 2019 included net sales of $26,999 and $94,975 resulting from these acquisitions. In aggregate, these acquisitions did not contribute net earnings to the Company's consolidated 2019 results. The proforma effect of these acquisitions on the thirteen and thirty-nine weeks of 2019 and 2018 is as follows:
 
Thirteen weeks ended September 28, 2019
Thirteen weeks ended September 29, 2018
Thirty-nine weeks ended September 28, 2019
Thirty-nine weeks ended September 29, 2018

Net sales
$
690,340

$
698,306

$
2,088,524

$
2,129,968

Net earnings
40,144

5,002

118,555

80,842

Earnings per share-diluted
1.85

0.22

5.43

3.58

Acquisitions of Noncontrolling Interests
In April 2019, the Company acquired the remaining 4.8% of Valmont SM that it did not own for $4,763. In March 2018, the Company acquired the remaining 10% of Valmont Industria e Commercio Ltda. that it did not own for $5,510. As these transactions were for the acquisition of all of the remaining shares of a consolidated subsidiary with no change in control, they were recorded within shareholders' equity and as a financing activity in the Consolidated Statements of Cash Flows.


17

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(3) DIVESTITURE
On April 30, 2018, the Company completed the sale of Donhad, its grinding media business in Australia, reported in the Other segment. The business was sold because it did not fit the long-term strategic plans for the Company. The grinding media business historical annual sales, operating profit, and net assets are not significant for discontinued operations presentation. The grinding media business had an operating loss of $0 and $913 for the thirteen and thirty-nine weeks ended September 29, 2018. The Company received Australian $82,500 (U.S. $62,518) in proceeds from the sale.
The pre-tax loss recorded during the second quarter of 2018 from the divestiture is reported in other income (expense). The loss is comprised of the proceeds from buyer, less deal-related costs, less the net assets of the business which resulted in a gain of $4,334. Offsetting this amount is a $(10,418) realized loss on foreign exchange translation adjustments and net investment hedges previously reported in shareholders' equity.
 
 
Pre-tax gain from divestiture, before recognition of currency translation loss
$
4,334

Recognition of cumulative currency translation loss and hedges (out of OCI)
(10,418
)
   Net pre-tax loss from divestiture of the grinding media business
$
(6,084
)

The transaction did not result in a taxable capital gain as the cash proceeds were less than the tax carrying value of the business. There is an insignificant tax benefit from the tax deductibility of deal related expenses.

18

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(4) RESTRUCTURING ACTIVITIES    
During 2018, the Company executed certain regional restructuring activities (the "2018 Plan") primarily in the ESS and Utility segments to transform its operational business model including exiting certain local markets. During the full year of 2018, the Company incurred $18,380 of cost of sales and $15,651 of selling, general, and administrative expense for the 2018 Plan. In connection with exiting certain local markets as a result of the 2018 Plan, the Company also recorded $7,944 of impairments of current and other assets during fiscal 2018, primarily inventory.

The following pre-tax expense were recognized during the third quarter of 2018:
 
 
ESS
 
Utility
 
Corporate
 
Total
Severance
 
$
1,706

 
$
—

 
$
—

 
$
1,706

Other cash restructuring expenses
 
326

 
497

 
—

 
823

Asset impairments/net loss on disposals
 
1,406

 
—

 
—

 
1,406

   Total cost of sales
 
3,438

 
497

 
—

 
3,935

 
 
 
 
 
 
 
 
 
Severance
 
1,757

 
—

 
—

 
1,757

Other cash restructuring expenses
 
551

 
—

 
—

 
551

Asset impairments/net loss on disposals
 
—

 
—

 
—

 
—

  Total selling, general and administrative expenses
 
2,308

 
—

 
—

 
2,308

      Consolidated total
 
$
5,746

 
$
497

 
$
—

 
$
6,243



    
In the first three quarters of 2018, the Company recognized the following pre-tax restructuring expenses:

 
 
ESS
 
Utility
 
Corporate
 
Total
Severance
 
$
3,732

 
$
515

 
$
—

 
$
4,247

Other cash restructuring expenses
 
478

 
2,228

 
—

 
2,706

Asset impairments/net loss on disposals
 
3,812

 
—

 
—

 
$
3,812

   Total cost of sales
 
8,022

 
2,743

 
—

 
10,765

 
 
 
 
 
 
 
 
 
Severance
 
5,268

 
—

 
—

 
$
5,268

Other cash restructuring expenses
 
1,118

 
—

 
126

 
1,244

Asset impairments/net loss on disposals
 
385

 
—

 
—

 
385

  Total selling, general and administrative expenses
 
6,771

 
—

 
126

 
6,897

      Consolidated total
 
$
14,793

 
$
2,743

 
$
126

 
$
17,662




Liabilities recorded for the restructuring plans and changes therein for the first three quarters of 2019 were as follows:
 
 
Balance at December 29, 2018
 
Recognized Restructuring Expense
 
Costs Paid or Otherwise Settled
 
Balance at September 28, 2019
Severance
 
$
6,594

 
$
—

 
$
(6,237
)
 
$
357

Other cash restructuring expenses
 
3,462

 
—

 
(2,982
)
 
480

   Total
 
$
10,056

 
$
—

 
$
(9,219
)
 
$
837



19

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(5) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at September 28, 2019 and December 29, 2018 were as follows:
 
September 28, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
236,029

 
$
143,306

 
13 years
Patents & Proprietary Technology
22,936

 
5,945

 
14 years
Other
7,494

 
6,886

 
5 years
 
$
266,459

 
$
156,137

 
 
 
December 29, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
219,508

 
$
132,180

 
13 years
Patents & Proprietary Technology
23,662

 
4,837

 
14 years
Other
7,971

 
6,891

 
5 years
 
$
251,141

 
$
143,908

 
 

Amortization expense for intangible assets for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018, respectively was as follows:
Thirteen weeks ended
 
Thirty-nine weeks ended
2019
 
2018
 
2019
 
2018
$
4,484

 
$
3,721

 
$
13,506

 
$
11,176


Estimated annual amortization expense related to finite‑lived intangible assets is as follows:
 
Estimated
Amortization
Expense
2019
$
17,687

2020
17,821

2021
15,523

2022
13,286

2023
11,594


The useful lives assigned to finite‑lived intangible assets included consideration of factors such as the Company’s past and expected experience related to customer retention rates, the remaining legal or contractual life of the underlying arrangement that resulted in the recognition of the intangible asset and the Company’s expected use of the intangible asset.


20

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(5) GOODWILL AND INTANGIBLE ASSETS (Continued)
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized and consist solely of trade names. The carrying value of trade names at September 28, 2019 and December 29, 2018 are as follows:
 
September 28,
2019
 
December 29,
2018
 
Year Acquired
Newmark
$
11,111

 
$
11,111

 
2004
Webforge
8,587

 
8,872

 
2010
Convert Italia S.p.A
8,203

 
8,580

 
2018
Valmont SM
7,799

 
8,155

 
2014
Ingal EPS/Ingal Civil Products
7,001

 
7,233

 
2010
Walpar
3,500

 
4,300

 
2018
Shakespeare
4,000

 
4,000

 
2014
Other
17,211

 
16,472

 
 
 
$
67,412

 
$
68,723

 
 

In its determination of these intangible assets as indefinite‑lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.    
The Company’s trade names were tested for impairment in the third quarter of 2019. The values of each trade name was determined using the relief-from-royalty method. Based on this evaluation, no trade names were determined to be impaired. The Company recorded a charge of $1,425 in the third quarter of 2018 for the offshore and other complex steel structures (Valmont SM) trade name.
Goodwill
The carrying amount of goodwill by segment as of September 28, 2019 and December 29, 2018 was as follows:
 
Engineered
Support
Structures
Segment
 
Utility
Support
Structures
Segment
 
Coatings
Segment
 
Irrigation
Segment
 
Total
Gross Balance December 29, 2018
$
204,735

 
$
123,618

 
$
80,937

 
$
25,164

 
$
434,454

Accumulated impairment losses
(18,670
)
 
(14,355
)
 
(16,222
)
 
—

 
(49,247
)
Balance at December 29, 2018
186,065

 
109,263

 
64,715

 
25,164

 
385,207

Acquisitions
21,043

 
7,889

 
11,715

 
—

 
40,647

Foreign currency translation
(2,652
)
 
(1,758
)
 
(133
)
 
368

 
(4,175
)
Balance at September 28, 2019
$
204,456

 
$
115,394

 
$
76,297

 
$
25,532

 
$
421,679







21

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(5) GOODWILL AND INTANGIBLE ASSETS (Continued)
The Company’s annual impairment test of goodwill was performed during the third quarter of 2019, using the discounted cash flow method. The estimated fair value of all of our reporting units exceeded their respective carrying value, so no goodwill was impaired. The access systems reporting unit with $43,400 of goodwill, is the reporting unit that did not have a substantial excess of estimated fair value over its carrying value. The model assumes geographic expansion of its architectural product lines which realized recent organic growth in its existing market. If architectural systems sales do not increase, the Company will be required to perform an interim test of goodwill. A hypothetical 1.0% change in the discount rate would increase/decrease the fair value of this reporting unit by approximately $15,000, which approximates the cushion between the estimated fair value and carrying value of this reporting unit. In the third quarter of 2018, the Company recognized a goodwill impairment totaling $14,355, which represented all of the goodwill of the offshore and other complex steel reporting unit.  
(6) CASH FLOW SUPPLEMENTARY INFORMATION
The Company considers all highly liquid temporary cash investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash payments for interest and income taxes (net of refunds) for the thirty-nine weeks ended September 28, 2019 and September 29, 2018 were as follows:
 
2019
 
2018
Interest
$
19,440

 
$
23,624

Income taxes
39,850

 
36,855
















22

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(7) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
 
Basic EPS
 
Dilutive
Effect of
Stock
Options
 
Diluted EPS
Thirteen weeks ended September 28, 2019:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
40,144

 
$
—

 
$
40,144

Weighted average shares outstanding (000's)
21,556

 
128

 
21,684

Per share amount
$
1.86

 
$
0.01

 
$
1.85

Thirteen weeks ended September 29, 2018:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
4,448

 
$
—

 
$
4,448

Weighted average shares outstanding (000's)
22,215

 
137

 
22,352

Per share amount
$
0.20

 
$
—

 
$
0.20

Thirty-nine weeks ended September 28, 2019
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
118,022

 
$
—

 
$
118,022

Weighted average shares outstanding (000's)
21,725

 
101

 
21,826

Per share amount
$
5.43

 
$
(0.02
)
 
$
5.41

Thirty-nine weeks ended September 29, 2018:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
76,689

 
$
—

 
$
76,689

Weighted average shares outstanding (000's)
22,421

 
153

 
22,574

Per share amount
$
3.42

 
$
(0.02
)
 
$
3.40


At September 28, 2019 and September 29, 2018, there were 177,153 and 190,021 outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share, respectively.

23

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) HEDGING ACTIVITIES
The Company manages interest rate risk, commodity price risk, and foreign currency risk related to foreign currency denominated transactions and investments in foreign subsidiaries. Depending on the circumstances, the Company may manage these risks by utilizing derivative financial instruments. Some derivative financial instruments are marked to market and recorded in the Company's consolidated statements of earnings, while others may be accounted for as fair value, cash flow, or net investment hedges. Derivative financial instruments have credit and market risk. The Company manages these risks of derivative instruments by monitoring limits as to the types and degree of risk that can be taken, and by entering into transactions with counterparties who are recognized, stable multinational banks.
Fair value of derivative instruments at September 28, 2019 and December 29, 2018 are as follows:
Derivatives designated as hedging instruments:
Balance sheet location
 
September 28, 2019
 
December 29, 2018
Commodity forward contracts
Prepaid expenses and other assets
 
$
—

 
$
(285
)
Foreign currency forward contracts
Prepaid expenses and other assets
 
4,936

 
8,357

Cross currency swap contracts
Prepaid expenses and other assets
 
4,472

 
1,075

 
 
 
$
9,408

 
$
9,147


Gains (losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018 are as follows:
 
 
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
Statements of earnings location
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Commodity forward contracts
Product cost of sales
 
$
(1,329
)
 
$
717

 
$
(1,425
)
 
$
717

Foreign currency forward contracts
Other income (expenses)
 
123

 
230

 
827

 
230

Foreign currency forward contracts
Loss from divestiture of grinding media business
 
$
—

 
—

 
—

 
(1,215
)
Interest rate hedges
Interest expense
 
(16
)
 
(395
)
 
(48
)
 
(439
)
Cross currency swap contracts
Interest expense
 
769

 
206

 
2,096

 
206

 
 
 
$
(453
)
 
$
758

 
$
1,450

 
$
(501
)

Cash Flow Hedges
In 2019 and 2018, the Company entered into steel hot rolled coil (HRC) forward contracts that qualified as a cash flow hedge of the variability in cash flows attributable to future steel purchases. In 2019, the forward contracts had a notional amount of $12,128 for the purchase of 3,500 short tons for each month from May 2019 to September 2019. In 2018, the forward contracts entered into had a notional amount of $8,469 for the purchase of 3,500 short tons for each month from July 2018 to September 2018 and a notional amount of $15,563 for the purchase of 6,500 short tons for each month from October 2018 to December 2018. The gain/(loss) realized upon settlement is recorded in product cost of sales in the condensed consolidated statements of earnings over average inventory turns. The forward contracts were closed out in the third quarter of 2019.
    


24

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) HEDGING ACTIVITIES (Continued)
On June 19, 2018, the Company issued and sold $200,000 aggregate principal amount of the Company’s 5.00% senior notes due 2044 and $55,000 aggregate principal amount of the Company’s 5.25% senior notes due 2054. During the second quarter of 2018, the Company executed contracts to hedge the risk of potential fluctuations in the treasury rates on the 2044 Notes and 2054 Notes which would change the amount of net proceeds received from the debt offering. These contracts had a combined notional amount of $175,000. On June 8, 2018, these contracts were settled with the Company paying $2,467 to the counterparties which was recorded in Other Comprehensive Income ("OCI") and will be amortized as an increase to interest expense over the term of the debt. Due to the retirement of the 2020 bonds in July 2018, the Company wrote off the remaining $411 unamortized loss on the related cash flow hedge.
Net Investment Hedges
In the second quarter of 2019, all net investment hedges incepted in 2018 were early settled and the Company received proceeds of $11,184, which will remain in OCI until either the sale or substantially complete liquidation of the related subsidiaries.
In the second quarter of 2019, the Company entered into a new foreign currency forward contract to mitigate foreign currency risk of the Company's investment in its Australian dollar denominated businesses. The forward contract, which qualifies as a net investment hedge, has a maturity date of April 2021 and a notional amount to sell Australian dollars to receive $100,000. The Australian dollar forward contract effectiveness was assessed under the spot method with forward points excluded totaling $881, which the Company has elected to amortize in other income (expense) in the condensed consolidated statements of earnings using the straight-line method over the remaining term of the contract.
In the second quarter of 2019, the Company entered into two new fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense. Interest is exchanged twice per year on April 1 and October 1.
Key terms of the two CCS are as follows:
Currency
Notional Amount
Termination Date
Swapped Interest Rate
Set Settlement Amount
Danish Krone, DKK
$
50,000

April 1, 2024
2.68%
DKK 333,625
Euro
$
80,000

April 1, 2024
2.825%
€71,550

The Company designated the full notional amount of the two CCS ($130,000) as a hedge of the net investment in certain Danish and European subsidiaries under the spot method, with all changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI, and will remain in OCI until either the sale or substantially complete liquidation of the related subsidiaries. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.

25

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(9) LEASES
The Company has operating leases for plant locations, corporate offices, sales offices, and certain equipment. Outstanding leases at September 28, 2019 have remaining lease terms of one year to fifteen years, some of which include options to extend leases for up to five years. The Company does not have any financing leases. The Company elected practical expedients not to reassess whether existing contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for any existing leases, to use hindsight in determining the lease term and in assessing impairment of the right-of-use asset, and to not separate lease and non-lease components for all classes of underlying assets.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expenses, and operating lease liabilities in our condensed consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make future lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on information available at the date of adoption in determining the present value of future lease payments. The operating lease ROU asset also includes any lease payments made and excludes any lease incentives and impairments. Some of the Company's facility leases include options to extend the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

Lease cost and other information related to the Company's operating leases are as follows:

 
Thirteen weeks ended September 28, 2019
 
Thirty-nine weeks ended September 28, 2019
Operating lease cost
$
5,002

 
$
15,471

Short-term lease cost
$
650

 
$
1,919

    Total lease cost
$
5,652

 
$
17,390

 
 
 
 
Operating cash outflows from operating leases
$
5,499

 
$
16,966

ROU assets obtained in exchange for lease obligations
$
626

 
$
3,057

Weighted average remaining lease term
10 years

 
10 years

Weighted average discount rate
3.9
%
 
3.9
%

As part of the adoption of ASC 842, the Company evaluated at the historical and projected cash flow generation of the operations at each of its long-term leased facilities.  One of those facilities, a galvanizing operation in Melbourne, Australia, will not generate sufficient cash flows on an undiscounted cash flow basis to recover the carrying value of the right of use asset.  The Company then estimated a value for this operation using a discounted cash flow model.  The result was an impairment of the right-of-use lease asset of approximately $12,063. The after-tax balance of $8,444 was recorded as a reduction to retained earnings for the transition adjustment of adoption.




26

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)




(9) LEASES (Continued)

Supplemental balance sheet information related to operating leases for the third quarter of 2019 is as follows:
 
Classification
September 28, 2019
Operating lease assets
Other assets
$
80,715

 
 
 
Operating lease short-term liabilities
Accrued expenses
14,634

Operating lease long-term liabilities
Operating lease liabilities
78,790

    Total lease liabilities
 
$
93,424



Minimum lease payments under operating leases expiring subsequent to September 28, 2019 are as follows:
Fiscal year ending:
 
2019 (excluding the nine months ended September 28, 2019)
$
4,738

2020
17,397

2021
14,154

2022
11,508

2023
8,684

Subsequent
57,574

Total minimum lease payments
$
114,055

  Less: Interest
$
20,631

Present value of minimum lease payments
$
93,424


The below table as of December 29, 2018 is carried forward, including certain amounts that were historically included in the table as a result of the historical lease term conclusions but were not included in the initial ROU asset and lease liability measurement as of December 30, 2018 due to the Company's election of the hindsight practical expedient. The Company also determined one of its leases with escalating rent payments should be expensed using the straight-line method over a longer term and the result was an additional reduction to retained earnings of $442 for a transition adjustment. Minimum lease payments for operating leases under ASC 840 expiring subsequent to December 29, 2018 are as follows:

Fiscal year ending:
 
2019
$
18,757

2020
16,830

2021
13,992

2022
11,932

2023
8,866

Subsequent
76,438

Total minimum lease payments
$
146,815




27

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(10) BUSINESS SEGMENTS
The Company has four reportable segments based on its management structure. Each segment is global in nature with a manager responsible for segment operational performance and the allocation of capital within the segment. Net corporate expense is net of certain service‑related expenses that are allocated to business units generally on the basis of employee headcounts.

Reportable segments are as follows:

ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture of engineered metal and composite poles, towers, and components for global lighting, traffic, and wireless communication markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products;

UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete structures for the global utility transmission, distribution, and generation applications, renewable energy generation equipment, and substations;
COATINGS: This segment consists of galvanizing, painting, and anodizing services; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment, parts, services, tubular products, water management solutions, and technology for precision agriculture.
In addition to these four reportable segments, the Company had other businesses and activities that individually are not more than 10% of consolidated sales, operating income or assets. This includes the manufacture of forged steel grinding media for the mining industry and is reported in the "Other" category until its divestiture in 2018.
The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate LIFO expense, interest expense, non-operating income and deductions, or income taxes to its business segments.

28

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(10) BUSINESS SEGMENTS (Continued)
Summary by Business
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment:
 
 
 
 
 
 
 
Lighting, Traffic, and Highway Safety Products
$
191,262

 
$
183,184

 
$
530,021

 
$
522,558

    Communication Products
48,391

 
35,985

 
138,710

 
109,690

Access Systems
28,405

 
32,355

 
88,363

 
94,941

Engineered Support Structures segment
268,058

 
251,524

 
757,094

 
727,189

Utility Support Structures segment:
 
 
 
 
 
 
 
Steel
153,433

 
161,847

 
460,309

 
471,947

Concrete
28,011

 
27,715

 
88,415

 
81,562

Engineered Solar Tracker Solutions
3,418

 
6,090

 
43,642

 
6,090

Offshore and Other Complex Steel Structures
20,096

 
22,617

 
66,343

 
66,251

Utility Support Structures segment
204,958

 
218,269

 
658,709

 
625,850

Coatings segment
92,957

 
90,433

 
278,142

 
266,952

Irrigation segment:


 


 


 


    North America
82,840

 
78,168

 
294,127

 
301,887

    International
61,340

 
62,007

 
158,054

 
189,177

        Irrigation segment
144,180

 
140,175

 
452,181

 
491,064

Other
—

 
—

 
—

 
23,080

Total
710,153

 
700,401

 
2,146,126

 
2,134,135

INTERSEGMENT SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment
1,564

 
3,093

 
5,066

 
16,801

Utility Support Structures segment
762

 
326

 
2,246

 
1,517

Coatings segment
16,035

 
15,886

 
49,900

 
49,408

Irrigation segment
1,452

 
2,404

 
5,564

 
6,628

Total
19,813

 
21,709

 
62,776

 
74,354

NET SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment
266,494

 
248,431

 
752,028

 
710,388

Utility Support Structures segment
204,196

 
217,943

 
656,463

 
624,333

Coatings segment
76,922

 
74,547

 
228,242

 
217,544

Irrigation segment
142,728

 
137,771

 
446,617

 
484,436

Other
—

 
—

 
—

 
23,080

Total
$
690,340

 
$
678,692

 
$
2,083,350

 
$
2,059,781

 
 
 
 
 
 
 
 
OPERATING INCOME:
 
 
 
 
 
 
 
Engineered Support Structures segment
$
21,825

 
$
16,499

 
$
55,152

 
$
36,411

Utility Support Structures segment
20,362

 
2,090

 
61,443

 
46,298

Coatings segment
13,865

 
14,373

 
39,037

 
41,108

Irrigation segment
18,204

 
21,302

 
59,868

 
82,917

Other
—

 
—

 
—

 
(913
)
Adjustment to LIFO inventory valuation method
2,799

 
(2,780
)
 
5,539

 
(5,512
)
Corporate
(13,192
)
 
(13,124
)
 
(38,360
)
 
(34,319
)
Total
$
63,863

 
$
38,360

 
$
182,679

 
$
165,990



29

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
The Company has two tranches of senior unsecured notes. All of the senior notes are guaranteed, jointly, severally, fully and unconditionally (subject to certain customary release provisions, including sale of the subsidiary guarantor, or sale of all or substantially all of its assets) by certain of the Company’s current and future direct and indirect domestic and foreign subsidiaries (collectively the “Guarantors”), excluding its other current domestic and foreign subsidiaries which do not guarantee the debt (collectively referred to as the “Non-Guarantors”). All Guarantors are 100% owned by the parent company.

Consolidated financial information for the Company ("Parent"), the Guarantor subsidiaries and the Non-Guarantor subsidiaries is as follows:
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended September 28, 2019
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
302,461

 
$
135,392

 
$
310,676

 
$
(58,189
)
 
$
690,340

Cost of sales
223,949

 
96,566

 
251,561

 
(57,822
)
 
514,254

Gross profit
78,512

 
38,826

 
59,115

 
(367
)
 
176,086

Selling, general and administrative expenses
67,366

 
2,325

 
42,532

 
—

 
112,223

Operating income
11,146

 
36,501

 
16,583

 
(367
)
 
63,863

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(9,471
)
 
(2,544
)
 
(504
)
 
2,543

 
(9,976
)
Interest income
607

 
2

 
2,903

 
(2,543
)
 
969

Other
849

 
12

 
309

 
—

 
1,170

 
(8,015
)
 
(2,530
)
 
2,708

 
—

 
(7,837
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
3,131

 
33,971

 
19,291

 
(367
)
 
56,026

Income tax expense (benefit)
2,084

 
8,834

 
2,930

 
(85
)
 
13,763

Earnings before equity in earnings of nonconsolidated subsidiaries
1,047

 
25,137

 
16,361

 
(282
)
 
42,263

Equity in earnings of nonconsolidated subsidiaries
39,097

 
2,017

 
—

 
(41,114
)
 
—

Net earnings
40,144

 
27,154

 
16,361

 
(41,396
)
 
42,263

Less: Earnings attributable to noncontrolling interests
—

 
—

 
(2,119
)
 
—

 
(2,119
)
Net earnings attributable to Valmont Industries, Inc.
$
40,144

 
$
27,154

 
$
14,242

 
$
(41,396
)
 
$
40,144




30

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirty-nine weeks ended September 28, 2019
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
915,436

 
$
413,050

 
$
939,484

 
$
(184,620
)
 
$
2,083,350

Cost of sales
675,093

 
307,209

 
763,499

 
(184,080
)
 
1,561,721

Gross profit
240,343

 
105,841

 
175,985

 
(540
)
 
521,629

Selling, general and administrative expenses
175,000

 
28,301

 
135,649

 
—

 
338,950

Operating income
65,343

 
77,540

 
40,336

 
(540
)
 
182,679

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(28,638
)
 
(8,583
)
 
(1,333
)
 
8,583

 
(29,971
)
Interest income
1,060

 
32

 
10,306

 
(8,583
)
 
2,815

Other
6,264

 
33

 
395

 
—

 
6,692

 
(21,314
)
 
(8,518
)
 
9,368

 
—

 
(20,464
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
44,029

 
69,022

 
49,704

 
(540
)
 
162,215

Income tax expense (benefit)
9,856

 
16,691

 
13,680

 
(76
)
 
40,151

Earnings before equity in earnings of nonconsolidated subsidiaries
34,173

 
52,331

 
36,024

 
(464
)
 
122,064

Equity in earnings of nonconsolidated subsidiaries
83,849

 
8,843

 
—

 
(92,692
)
 
—

Net earnings
118,022

 
61,174

 
36,024

 
(93,156
)
 
122,064

Less: Earnings attributable to noncontrolling interests
—

 
—

 
(4,042
)
 
—

 
(4,042
)
Net earnings attributable to Valmont Industries, Inc.
$
118,022

 
$
61,174

 
$
31,982

 
$
(93,156
)
 
$
118,022





31

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended September 29, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
293,070

 
$
132,059

 
$
319,129

 
$
(65,566
)
 
$
678,692

Cost of sales
227,467

 
100,130

 
252,353

 
(65,598
)
 
514,352

Gross profit
65,603

 
31,929

 
66,776

 
32

 
164,340

Selling, general and administrative expenses
51,159

 
12,908

 
61,913

 
—

 
125,980

Operating income
14,444

 
19,021

 
4,863

 
32

 
38,360

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,511
)
 
(3,600
)
 
(443
)
 
3,600

 
(10,954
)
Interest income
174

 
47

 
4,379

 
(3,600
)
 
1,000

Other
(13,765
)
 
15

 
1,426

 
—

 
(12,324
)
 
(24,102
)
 
(3,538
)
 
5,362

 
—

 
(22,278
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
(9,658
)
 
15,483

 
10,225

 
32

 
16,082

Income tax expense (benefit)
(4,497
)
 
4,732

 
8,882

 
(26
)
 
9,091

Earnings before equity in earnings of nonconsolidated subsidiaries
(5,161
)
 
10,751

 
1,343

 
58

 
6,991

Equity in earnings of nonconsolidated subsidiaries
9,609

 
4,041

 
—

 
(13,650
)
 
—

Net earnings
4,448

 
14,792

 
1,343

 
(13,592
)
 
6,991

Less: Earnings attributable to noncontrolling interests
—

 
—

 
(2,543
)
 
—

 
(2,543
)
Net earnings attributable to Valmont Industries, Inc.
$
4,448

 
$
14,792

 
$
(1,200
)
 
$
(13,592
)
 
$
4,448




32

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirty-nine weeks ended September 29, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
906,978

 
$
386,793

 
$
966,764

 
$
(200,754
)
 
$
2,059,781

Cost of sales
683,740

 
293,238

 
776,254

 
(202,030
)
 
1,551,202

Gross profit
223,238

 
93,555

 
190,510

 
1,276

 
508,579

Selling, general and administrative expenses
147,949

 
37,360

 
157,280

 
—

 
342,589

Operating income
75,289

 
56,195

 
33,230

 
1,276

 
165,990

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(32,788
)
 
(11,229
)
 
(1,031
)
 
11,229

 
(33,819
)
Interest income
655

 
62

 
14,225

 
(11,229
)
 
3,713

Other
(15,773
)
 
41

 
(1,973
)
 
—

 
(17,705
)
 
(47,906
)
 
(11,126
)
 
11,221

 
—

 
(47,811
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
27,383

 
45,069

 
44,451

 
1,276

 
118,179

Income tax expense (benefit)
6,181

 
12,260

 
17,525

 
62

 
36,028

Earnings before equity in earnings of nonconsolidated subsidiaries
21,202

 
32,809

 
26,926

 
1,214

 
82,151

Equity in earnings of nonconsolidated subsidiaries
55,487

 
37,939

 
—

 
(93,426
)
 
—

Net earnings
76,689

 
70,748

 
26,926

 
(92,212
)
 
82,151

Less: Earnings attributable to noncontrolling interests
—

 
—

 
(5,462
)
 
—

 
(5,462
)
Net earnings attributable to Valmont Industries, Inc.
$
76,689

 
$
70,748

 
$
21,464

 
$
(92,212
)
 
$
76,689




33

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended September 28, 2019
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
40,144

 
$
27,154

 
$
16,361

 
$
(41,396
)
 
$
42,263

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)
—

 
4,512

 
(28,293
)
 
—

 
(23,781
)
    Gain (loss) on hedging activities
9,315

 
—

 
—

 
—

 
9,315

Equity in other comprehensive income
(22,959
)
 
—

 
—

 
22,959

 
—

Other comprehensive income (loss)
(13,644
)
 
4,512

 
(28,293
)
 
22,959

 
(14,466
)
Comprehensive income (loss)
26,500

 
31,666

 
(11,932
)
 
(18,437
)
 
27,797

Comprehensive income attributable to noncontrolling interests
—

 
—

 
(1,297
)
 
—

 
(1,297
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
26,500

 
$
31,666

 
$
(13,229
)
 
$
(18,437
)
 
$
26,500






CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirty-nine weeks ended September 28, 2019
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
118,022

 
$
61,174

 
$
36,024

 
$
(93,156
)
 
$
122,064

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)
—

 
291

 
(20,757
)
 
—

 
(20,466
)
Gain (loss) on hedging activities
6,282

 
—

 
—

 
—

 
6,282

Equity in other comprehensive income
(19,814
)
 
—

 
—

 
19,814

 
—

Other comprehensive income (loss)
(13,532
)
 
291

 
(20,757
)
 
19,814

 
(14,184
)
Comprehensive income (loss)
104,490

 
61,465

 
15,267

 
(73,342
)
 
107,880

Comprehensive income attributable to noncontrolling interests
—

 
—

 
(3,390
)
 
—

 
(3,390
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
104,490

 
$
61,465

 
$
11,877

 
$
(73,342
)
 
$
104,490




34

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended September 29, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
4,448

 
$
14,792

 
$
1,343

 
$
(13,592
)
 
$
6,991

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)
—

 
4,289

 
(14,921
)
 
—

 
(10,632
)
        Realized loss on divestiture of grinding media
            business recorded in earnings
—

 
—

 
—

 
—

 
—

Gain (loss) on hedging activities
(910
)
 
—

 
—

 
—

 
(910
)
Equity in other comprehensive income
(10,478
)
 
—

 
—

 
10,478

 
—

Other comprehensive income (loss)
(11,388
)
 
4,289

 
(14,921
)
 
10,478

 
(11,542
)
Comprehensive income (loss)
(6,940
)
 
19,081

 
(13,578
)
 
(3,114
)
 
(4,551
)
Comprehensive income attributable to noncontrolling interests
—

 
—

 
(2,389
)
 
—

 
(2,389
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
(6,940
)
 
$
19,081

 
$
(15,967
)
 
$
(3,114
)
 
$
(6,940
)



    
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirty-nine weeks ended September 29, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
76,689

 
$
70,748

 
$
26,926

 
$
(92,212
)
 
$
82,151

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)
—

 
2,122

 
(52,903
)
 
—

 
(50,781
)
        Realized loss on divestiture of grinding media
            business recorded in earnings

—

 
—

 
9,203

 
—

 
9,203

Gain (loss) on hedging activities
834

 
—

 
—

 
—

 
834

Equity in other comprehensive income
(44,366
)
 
—

 
—

 
44,366

 
—

Other comprehensive income (loss)
(43,532
)
 
2,122

 
(43,700
)
 
44,366

 
(40,744
)
Comprehensive income (loss)
33,157

 
72,870

 
(16,774
)
 
(47,846
)
 
41,407

Comprehensive income attributable to noncontrolling interests
—

 
—

 
(8,250
)
 
—

 
(8,250
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
33,157

 
$
72,870

 
$
(25,024
)
 
$
(47,846
)
 
$
33,157




35

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS
September 28, 2019
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
179,765

 
$
1,963

 
$
145,472

 
$
—

 
$
327,200

Receivables, net
161,260

 
79,077

 
260,878

 
—

 
501,215

Inventories
125,240

 
46,133

 
208,869

 
(2,942
)
 
377,300

Contract asset - costs and profits in excess of billings
58,713

 
35,195

 
26,468

 
—

 
120,376

Prepaid expenses and other assets
15,569

 
4,866

 
29,985

 
—

 
50,420

Refundable income taxes
11,893

 
—

 
—

 
—

 
11,893

Total current assets
552,440

 
167,234

 
671,672

 
(2,942
)
 
1,388,404

Property, plant and equipment, at cost
614,979

 
199,176

 
419,607

 
—

 
1,233,762

Less accumulated depreciation and amortization
411,808

 
100,692

 
172,894

 
—

 
685,394

Net property, plant and equipment
203,171

 
98,484

 
246,713

 
—

 
548,368

Goodwill
20,108

 
140,095

 
261,476

 
—

 
421,679

Other intangible assets
36

 
46,758

 
130,940

 
—

 
177,734

Investment in subsidiaries and intercompany accounts
1,333,420

 
1,138,854

 
840,925

 
(3,313,199
)
 
—

Other assets
78,721

 
4,859

 
105,677

 
—

 
189,257

Total assets
$
2,187,896

 
$
1,596,284

 
$
2,257,403

 
$
(3,316,141
)
 
$
2,725,442

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
$
—

 
$
—

 
$
745

 
$
—

 
$
745

Notes payable to banks
—

 
—

 
19,324

 
—

 
19,324

Accounts payable
64,256

 
18,681

 
114,598

 
—

 
197,535

Accrued employee compensation and benefits
41,371

 
5,994

 
31,175

 
—

 
78,540

Accrued expenses
162,640

 
13,024

 
51,051

 
—

 
226,715

Dividends payable
8,088

 
—

 
—

 
—

 
8,088

Total current liabilities
276,355

 
37,699

 
216,893

 
—

 
530,947

Deferred income taxes
16,645

 
—

 
27,133

 
—

 
43,778

Long-term debt, excluding current installments
734,417

 
119,716

 
30,107

 
(119,716
)
 
764,524

Defined benefit pension liability
—

 
—

 
121,282

 
—

 
121,282

Other noncurrent liabilities
73,788

 
3,622

 
56,330

 
—

 
133,740

Shareholders’ equity:


 


 


 
 
 
 
Common stock of $1 par value
27,900

 
457,950

 
648,957

 
(1,106,907
)
 
27,900

Additional paid-in capital
—

 
162,906

 
1,107,536

 
(1,270,442
)
 
—

Retained earnings
2,119,843

 
733,109

 
416,932

 
(1,150,041
)
 
2,119,843

Accumulated other comprehensive income (loss)
(316,717
)
 
81,282

 
(412,247
)
 
330,965

 
(316,717
)
Treasury stock
(744,335
)
 
—

 
—

 
—

 
(744,335
)
Total Valmont Industries, Inc. shareholders’ equity
1,086,691

 
1,435,247

 
1,761,178

 
(3,196,425
)
 
1,086,691

Noncontrolling interest in consolidated subsidiaries
—

 
—

 
44,480

 
—

 
44,480

Total shareholders’ equity
1,086,691

 
1,435,247

 
1,805,658

 
(3,196,425
)
 
1,131,171

Total liabilities and shareholders’ equity
$
2,187,896

 
$
1,596,284

 
$
2,257,403

 
$
(3,316,141
)
 
$
2,725,442


36

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
104,256

 
$
5,518

 
$
203,436

 
$
—

 
$
313,210

Receivables, net
134,943

 
75,204

 
273,816

 
—

 
483,963

Inventories
138,158

 
37,019

 
210,791

 
(2,402
)
 
383,566

Contract asset - costs and profits in excess of billings
50,271

 
35,200

 
27,054

 
—

 
112,525

Prepaid expenses and other assets
21,858

 
746

 
20,196

 
—

 
42,800

Refundable income taxes
4,576

 
—

 
—

 
—

 
4,576

Total current assets
454,062

 
153,687

 
735,293

 
(2,402
)
 
1,340,640

Property, plant and equipment, at cost
579,046

 
172,050

 
409,769

 
—

 
1,160,865

Less accumulated depreciation and amortization
390,438

 
93,374

 
163,061

 
—

 
646,873

Net property, plant and equipment
188,608

 
78,676

 
246,708

 
—

 
513,992

Goodwill
20,108

 
110,562

 
254,537

 
—

 
385,207

Other intangible assets
76

 
27,452

 
148,428

 
—

 
175,956

Investment in subsidiaries and intercompany accounts
1,286,545

 
1,161,612

 
932,982

 
(3,381,139
)
 
—

Other assets
47,674

 
—

 
66,805

 
—

 
114,479

Total assets
$
1,997,073

 
$
1,531,989

 
$
2,384,753

 
$
(3,383,541
)
 
$
2,530,274

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
$
—

 
$
—

 
$
779

 
$
—

 
$
779

Notes payable to banks
—

 
—

 
10,678

 
—

 
10,678

Accounts payable
68,304

 
21,081

 
128,730

 
—

 
218,115

Accrued employee compensation and benefits
41,418

 
7,186

 
30,687

 
—

 
79,291

Accrued expenses
25,936

 
10,132

 
55,874

 
—

 
91,942

Dividends payable
8,230

 
—

 
—

 
—

 
8,230

Total current liabilities
143,888

 
38,399

 
226,748

 
—

 
409,035

Deferred income taxes
14,376

 
—

 
29,113

 
—

 
43,489

Long-term debt, excluding current installments
733,964

 
166,729

 
7,858

 
(166,729
)
 
741,822

Defined benefit pension liability
—

 
—

 
143,904

 
—

 
143,904

Other noncurrent liabilities
45,083

 
620

 
10,798

 
—

 
56,501

Shareholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock of $1 par value
27,900

 
457,950

 
648,682

 
(1,106,632
)
 
27,900

Additional paid-in capital
—

 
162,906

 
1,107,536

 
(1,270,442
)
 
—

Retained earnings
2,027,596

 
624,394

 
467,699

 
(1,092,093
)
 
2,027,596

Accumulated other comprehensive income
(303,185
)
 
80,991

 
(333,346
)
 
252,355

 
(303,185
)
Treasury stock
(692,549
)
 
—

 
—

 
—

 
(692,549
)
Total Valmont Industries, Inc. shareholders’ equity
1,059,762

 
1,326,241

 
1,890,571

 
(3,216,812
)
 
1,059,762

Noncontrolling interest in consolidated subsidiaries
—

 
—

 
75,761

 
—

 
75,761

Total shareholders’ equity
1,059,762

 
1,326,241

 
1,966,332

 
(3,216,812
)
 
1,135,523

Total liabilities and shareholders’ equity
$
1,997,073

 
$
1,531,989

 
$
2,384,753

 
$
(3,383,541
)
 
$
2,530,274




37

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)



(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-nine weeks ended September 28, 2019
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
118,022

 
$
61,174

 
$
36,024

 
$
(93,156
)
 
$
122,064

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
19,891

 
10,201

 
30,332

 
—

 
60,424

Noncash gain on trading securities
—

 
—

 
(48
)
 
—

 
(48
)
  Stock-based compensation
8,889

 
—

 
—

 
—

 
8,889

Defined benefit pension plan benefit
—

 
—

 
(382
)
 
—

 
(382
)
Contribution to defined benefit pension plan
—

 
—

 
(17,426
)
 
—

 
(17,426
)
Loss (gain) on sale of property, plant and equipment
103

 
81

 
(649
)
 
—

 
(465
)
Equity in earnings in nonconsolidated subsidiaries
(83,849
)
 
(8,843
)
 
—

 
92,692

 
—

Deferred income taxes
3,869

 
—

 
3,229

 
—

 
7,098

Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Net working capital
94,054

 
(15,715
)
 
(6,305
)
 
541

 
72,575

Other noncurrent liabilities
1,005

 
(5,461
)
 
(107
)
 
—

 
(4,563
)
Income taxes payable (refundable)
(4,488
)
 
(2,229
)
 
(2,219
)
 
—

 
(8,936
)
Net cash flows from operating activities
157,496

 
39,208

 
42,449

 
77

 
239,230

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(33,321
)
 
(12,462
)
 
(26,198
)
 
—

 
(71,981
)
Proceeds from sale of assets
35

 
26

 
1,264

 
—

 
1,325

Acquisitions, net of cash acquired
—

 
(63,141
)
 
(18,700
)
 
—

 
(81,841
)
Settlement of net investment hedge
11,184

 
—

 
—

 
—

 
11,184

Other, net
(30,475
)
 
27,878

 
4,791

 
(77
)
 
2,117

Net cash flows from investing activities
(52,577
)
 
(47,699
)
 
(38,843
)
 
(77
)
 
(139,196
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from short-term agreements
—

 
—

 
9,284

 
—

 
9,284

Proceeds from long-term borrowings
31,000

 
—

 
—

 
—

 
31,000

Principal payments on long-term borrowings
(10,000
)
 
—

 
(578
)
 
—

 
(10,578
)
Principal payments on long-term intercompany note
—

 
(42,574
)
 
42,574

 
—

 
—

Dividends paid
(24,554
)
 
—

 
—

 
—

 
(24,554
)
Dividends to noncontrolling interest
—

 
—

 
(6,549
)
 
—

 
(6,549
)
Intercompany dividends
63,650

 
47,541

 
(111,191
)
 
—

 
—

Purchase of noncontrolling interest
(22,805
)
 
—

 
(5,040
)
 
—

 
(27,845
)
Intercompany capital contribution
(13,284
)
 
—

 
13,284

 
—

 
—

Purchase of treasury shares
(55,172
)
 
—

 
—

 
—

 
(55,172
)
Proceeds from exercises under stock plans
3,211

 
—

 
—

 
—

 
3,211

Purchase of common treasury shares - stock plan exercises
(1,456
)
 
—

 
—

 
—

 
(1,456
)
Net cash flows from financing activities
(29,410
)
 
4,967

 
(58,216
)
 
—

 
(82,659
)
Effect of exchange rate changes on cash and cash equivalents
—

 
(31
)
 
(3,354
)
 
—

 
(3,385
)
Net change in cash and cash equivalents
75,509

 
(3,555
)
 
(57,964
)
 
—

 
13,990

Cash and cash equivalents—beginning of year
104,256

 
5,518

 
203,436

 
—

 
313,210

Cash and cash equivalents—end of period
$
179,765

 
$
1,963

 
$
145,472

 
$
—

 
$
327,200


38

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(11) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-nine weeks ended September 29, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
76,689

 
$
70,748

 
$
26,926

 
$
(92,212
)
 
$
82,151

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
19,498

 
10,564

 
31,956

 
—

 
62,018

Noncash loss on trading securities
—

 
—

 
(62
)
 
—

 
(62
)
Impairment of property, plant and equipment
—

 
—

 
4,197

 
—

 
4,197

Impairment of Goodwill & Intangibles
—

 
—

 
15,780

 
—

 
15,780

  Loss on divestiture of grinding media business
2,518

 
—

 
3,566

 
—

 
6,084

  Stock-based compensation
8,076

 
—

 
—

 
—

 
8,076

Defined benefit pension plan expense
—

 
—

 
(1,713
)
 
—

 
(1,713
)
Contribution to defined benefit pension plan
—

 
—

 
(1,555
)
 
—

 
(1,555
)
Loss (gain) on sale of property, plant and equipment
7

 
(27
)
 
(333
)
 
—

 
(353
)
Equity in earnings in nonconsolidated subsidiaries
(55,487
)
 
(37,939
)
 
—

 
93,426

 
—

Deferred income taxes
729

 
1,791

 
(1,706
)
 
—

 
814

Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Net working capital
(28,948
)
 
(40,255
)
 
(26,432
)
 
(1,277
)
 
(96,912
)
Other noncurrent liabilities
(762
)
 
387

 
(874
)
 
—

 
(1,249
)
Income taxes payable (refundable)
(23,256
)
 
(1,066
)
 
15,099

 
—

 
(9,223
)
Net cash flows from operating activities
(936
)
 
4,203

 
64,849

 
(63
)
 
68,053

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(16,940
)
 
(9,546
)
 
(22,433
)
 
—

 
(48,919
)
Proceeds from sale of assets
39

 
232

 
64,515

 
—

 
64,786

Acquisitions, net of cash acquired
(57,805
)
 
—

 
(67,504
)
 
—

 
(125,309
)
Settlement of net investment hedge
(1,621
)
 
—

 
—

 
—

 
(1,621
)
Other, net
28,299

 
(3,683
)
 
(27,050
)
 
63

 
(2,371
)
Net cash flows from investing activities
(48,028
)
 
(12,997
)
 
(52,472
)
 
63

 
(113,434
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
     Payments under short-term agreements
—

 
—

 
3,217

 
—

 
3,217

Proceeds from long-term borrowings
236,936

 
—

 
—

 
—

 
236,936

Principal payments on long-term borrowings
(252,219
)
 
—

 
(733
)
 
—

 
(252,952
)
Settlement of financial derivative
(2,467
)
 
—

 
—

 
—

 
(2,467
)
Debt issuance costs
(2,322
)
 
—

 
—

 
—

 
(2,322
)
Dividends paid
(25,415
)
 
—

 
—

 
—

 
(25,415
)
Dividends to noncontrolling interest
—

 
—

 
(5,737
)
 
—

 
(5,737
)
Intercompany dividends
123,363

 
11,296

 
(134,659
)
 
—

 
—

Purchase of noncontrolling interest
—

 
—

 
(5,510
)
 
—

 
(5,510
)
Purchase of treasury shares
(86,919
)
 
—

 
—

 
—

 
(86,919
)
Intercompany capital contribution
(3,492
)
 
3,492

 
—

 
—

 
—

Proceeds from exercises under stock plans
6,376

 
—

 
—

 
—

 
6,376

Purchase of common treasury shares - stock plan exercises
(1,914
)
 
—

 
—

 
—

 
(1,914
)
Net cash flows from financing activities
(8,073
)
 
14,788

 
(143,422
)
 
—

 
(136,707
)
Effect of exchange rate changes on cash and cash equivalents
—

 
(670
)
 
(14,425
)
 
—

 
(15,095
)
Net change in cash and cash equivalents
(57,037
)
 
5,324

 
(145,470
)
 
—

 
(197,183
)
Cash and cash equivalents—beginning of year
83,329

 
5,304

 
404,172

 
—

 
492,805

Cash and cash equivalents—end of period
$
26,292

 
$
10,628

 
$
258,702

 
$
—

 
$
295,622



39


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward‑looking statements are based on assumptions that management has made in light of experience in the industries in which the Company operates, as well as management’s perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company’s control) and assumptions. Management believes that these forward‑looking statements are based on reasonable assumptions. Many factors could affect the Company’s actual financial results and cause them to differ materially from those anticipated in the forward‑looking statements. These factors include, among other things, risk factors described from time to time in the Company’s reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments.
This discussion should be read in conjunction with the financial statements and notes thereto, and the management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2018. Segment net sales in the table below and elsewhere are presented net of intersegment sales. See Note 10 of our condensed consolidated financial statements for additional information on segment sales and intersegment sales.

40


Results of Operations (Dollars in millions, except per share amounts)    
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
September 28, 2019
 
September 29, 2018
 
% Incr. (Decr.)
 
September 28, 2019
 
September 29, 2018
 
% Incr. (Decr.)
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
690.3

 
$
678.7

 
1.7
 %
 
$
2,083.4

 
$
2,059.8

 
1.1
 %
Gross profit
176.1

 
164.3

 
7.2
 %
 
521.6

 
508.6

 
2.6
 %
as a percent of sales    
25.5
%
 
24.2
%
 
 
 
25.0
%
 
24.7
%
 
 
SG&A expense
112.2

 
126.0

 
(11.0
)%
 
339.0

 
$
342.6

 
(1.1
)%
as a percent of sales    
16.3
%
 
18.6
%
 
 
 
16.3
%
 
16.6
%
 
 
Operating income
63.9

 
38.4

 
66.4
 %
 
182.7

 
166.0

 
10.1
 %
as a percent of sales    
9.3
%
 
5.7
%
 
 
 
8.8
%
 
8.1
%
 
 
Net interest expense
9.0

 
10.0

 
(10.0
)%
 
27.2

 
30.1

 
(9.6
)%
Effective tax rate
24.6
%
 
56.5
%
 
 
 
24.8
%
 
30.5
%
 
 
Net earnings
$
40.1

 
$
4.4

 
811.4
 %
 
$
118.0

 
$
76.7

 
53.8
 %
Diluted earnings per share
$
1.85

 
$
0.20

 
825.0
 %
 
$
5.41

 
$
3.40

 
59.1
 %
Engineered Support Structures (ESS)
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
266.5

 
$
248.4

 
7.3
 %
 
$
752.0

 
$
710.4

 
5.9
 %
Gross profit
62.4

 
58.3

 
7.0
 %
 
177.8

 
164.5

 
8.1
 %
SG&A expense
40.5

 
41.8

 
(3.1
)%
 
122.6

 
128.1

 
(4.3
)%
Operating income
21.9

 
16.5

 
32.7
 %
 
55.2

 
36.4

 
51.6
 %
Utility Support Structures (Utility)
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
204.2

 
$
218.0

 
(6.3
)%
 
$
656.5

 
$
624.4

 
5.1
 %
Gross profit
44.0

 
41.1

 
7.1
 %
 
133.6

 
127.0

 
5.2
 %
SG&A expense
23.7

 
39.0

 
(39.2
)%
 
72.2

 
80.7

 
(10.5
)%
Operating income
20.3

 
2.1

 
866.7
 %
 
61.4

 
46.3

 
32.6
 %
Coatings
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
76.9

 
$
74.5

 
3.2
 %
 
$
228.3

 
$
217.5

 
5.0
 %
Gross profit
24.0

 
23.8

 
0.8
 %
 
71.7

 
68.6

 
4.5
 %
SG&A expense
10.1

 
9.4

 
7.4
 %
 
32.7

 
27.5

 
18.9
 %
Operating income
13.9

 
14.4

 
(3.5
)%
 
39.0

 
41.1

 
(5.1
)%
Irrigation
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
142.7

 
$
137.8

 
3.6
 %
 
$
446.6

 
$
484.4

 
(7.8
)%
Gross profit
42.9

 
44.0

 
(2.5
)%
 
133.0

 
153.2

 
(13.2
)%
SG&A expense
24.7

 
22.7

 
8.8
 %
 
73.1

 
70.3

 
4.0
 %
Operating income
18.2

 
21.3

 
(14.6
)%
 
59.9

 
82.9

 
(27.7
)%
Other
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
—

 
$
—

 
NM
 
$
—

 
$
23.1

 
(100.0
)%
Gross profit
—

 
—

 
NM
 
—

 
0.8

 
(100.0
)%
SG&A expense
—

 
—

 
NM
 
—

 
1.7

 
(100.0
)%
Operating income
—

 
—

 
NM
 
—

 
(0.9
)
 
(100.0
)%
Adjustment to LIFO inventory valuation method
 
 
 
 
 
 
 
 
 
 
 
Gross profit
$
2.8

 
$
(2.8
)
 
NM
 
$
5.5

 
$
(5.5
)
 
NM
Operating income
2.8

 
(2.8
)
 
NM
 
5.5

 
(5.5
)
 
NM
Net corporate expense
 
 
 
 
 
 
 
 
 
 
 
SG&A expense
$
13.2

 
$
13.1

 
0.8
 %
 
$
38.4

 
$
34.3

 
12.0
 %
Operating loss
(13.2
)
 
(13.1
)
 
(0.8
)%
 
(38.4
)
 
(34.3
)
 
(12.0
)%
NM=Not meaningful

41


Overview
On a consolidated basis, net sales were higher in the third quarter of 2019, as compared to 2018, due to higher sales in the ESS, Coatings, and Irrigation segments and lower sales for the Utility segment. Net sales were higher in the first three quarters of 2019, as compared with the same period in 2018, due to higher sales in the ESS, Utility, and Coatings segments that were offset by lower sales in the Irrigation and Other segments. The change in net sales in the third quarter and first three quarters of fiscal 2019, as compared with the same periods in fiscal 2018, is as follows:
 
Third quarter
 
Total
ESS
Utility
Coatings
Irrigation
Other
Sales - 2018
$
678.7

$
248.4

$
218.0

$
74.5

$
137.8

$
—

Volume
(9.8
)
15.0

(27.7
)
(6.1
)
9.0

—

Pricing/mix
12.6

0.5

12.8

2.8

(3.5
)
—

Acquisition/(divestiture)
17.4

8.4

2.1

6.9

—

—

Currency translation
(8.6
)
(5.8
)
(1.0
)
(1.2
)
(0.6
)
—

Sales - 2019
$
690.3

$
266.5

$
204.2

$
76.9

$
142.7

$
—

 
Year-to-date
 
Total
ESS
Utility
Coatings
Irrigation
Other
Sales - 2018
$
2,059.8

$
710.4

$
624.4

$
217.5

$
484.4

$
23.1

Volume
(77.4
)
28.0

(48.0
)
(18.7
)
(38.7
)
—

Pricing/mix
70.5

18.1

40.1

9.4

2.9

—

Acquisition/(divestiture)
70.4

20.3

43.9

25.1

4.2

(23.1
)
Currency translation
(39.9
)
(24.8
)
(3.9
)
(5.0
)
(6.2
)
—

Sales - 2019
$
2,083.4

$
752.0

$
656.5

$
228.3

$
446.6

$
—

Volume effects are estimated based on a physical production or sales measure. Since products we sell are not uniform in nature, pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold. Accordingly, pricing and mix changes do not necessarily result in operating income changes.

Average steel prices for both hot rolled coil and plate were lower in North America and China in the third quarter of 2019, as compared to 2018, contributing to lower cost of sales and improved gross profit.
    
The Company acquired the following businesses during 2018 and 2019:

•
A majority ownership stake in Torrent Engineering and Equipment ("Torrent") in the first quarter of 2018 (Irrigation).
•
Derit Infrastructure Pvt. Ltd. ("Derit") in the third quarter of 2018, which operates a lattice steel manufacturing facility located in India (Utility and Coatings).
•
A majority ownership stake in Convert Italia SpA ("Convert") in the third quarter of 2018, a provider of engineered solar tracker solutions (Utility).
•
Walpar in the third quarter of 2018, a domestic manufacturer of overhead sign structures (ESS).
•
CSP Coating Systems ("CSP Coatings") in the fourth quarter of 2018, a coatings provider in New Zealand (Coatings).
•
Larson Camouflage ("Larson") in the first quarter of 2019, an industry leading provider of architectural and camouflage concealment solutions for the wireless telecommunication market (ESS).
•
United Galvanizing ("United") in the first quarter of 2019, a domestic coatings provider (Coatings).

42


•
Connect-It Wireless, Inc. ("Connect-It") in the second quarter of 2019, a domestic communication components business (ESS).

The Company divested of its grinding media business, which was reported in Other, during the second quarter of 2018.

Restructuring Plan

In February 2018, the Company announced a restructuring plan related to certain operations in 2018, primarily in the ESS and Utility segments, through consolidation and other cost-reduction activities (the "2018 Plan"). The Company incurred pre-tax expenses from the 2018 Plan of $6.2 million and $17.7 million in the third quarter and first three quarters of 2018. The decrease in the third quarter and first three quarters of 2018 gross profit and operating income due to restructuring expense by segment is as follows:

            
Gross Profit
Total
ESS
Utility
Corporate
Third quarter
$
3.9

$
3.4

$
0.5

$
—

 
 
 
 
 
Year-to-date
$
10.8

$
8.0

$
2.8

$
—

            
Operating Income
Total
ESS
Utility
Corporate
Third quarter
$
6.2

$
5.7

$
0.5

$
—

 
 
 
 
 
Year-to-date
$
17.7

$
14.8

$
2.8

$
0.1


Currency Translation

In the third quarter and first three quarters of 2019, we realized a decrease in operating profit, as compared with 2018, due in part to currency translation effects associated with a stronger U.S. dollar against most foreign currencies. The breakdown of this effect by segment was as follows:
 
Total
ESS
Coatings
Irrigation
Corporate
Third quarter
$
(0.7
)
$
(0.5
)
$
(0.1
)
$
(0.1
)
$
—

 


 
 
 
 
Year-to-date
$
(2.2
)
$
(1.2
)
$
(0.4
)
$
(0.7
)
$
0.1


Gross Profit, SG&A, and Operating Income

At a consolidated level, gross margin (gross profit as a percent of sales) was higher in the third quarter and first three quarters of 2019, as compared with the same periods in 2018 attributed to lower raw material costs across the Company and improved selling prices across our infrastructure businesses. In the third quarter and first three quarters of 2019, gross profit increased for the ESS, Utility, and Coatings segments and decreased for the Irrigation segment. On a year-to-date basis, lower sales volumes and associated operating deleverage of fixed costs led to the decline for the Irrigation segment.
  
SG&A expenses decreased in the third quarter and first three quarters of 2019, as compared to the same periods in 2018. The decrease was due to impairment of the goodwill and trade name of the Offshore business in the third quarter of 2018 of $15.8 million and restructuring costs incurred in the third quarter and first three quarters of 2018 totaling $2.3 million and $6.9 million, respectively. These decreases were partially offset by SG&A expenses from acquired businesses and higher deferred compensation expense (offset by an increase of the same amount in other income).

    In the third quarter and first three quarters of 2019, as compared to the same periods in 2018, operating income was higher in the ESS and Utility segments and lower in the Irrigation and Coatings segments. The overall increase in operating income in the third quarter and first three quarters of 2019 is primarily attributable to the Offshore goodwill and tradename impairment and restructuring costs incurred in 2018 and a lower cost structure resulting from those activities in 2019.

43




Net Interest Expense and Debt
    
Net interest expense in the third quarter and first three quarters of 2019, as compared to 2018, was lower due to a refinancing related to retiring $250.2 million senior unsecured notes due 2020 at 6.625% in the third quarter of 2018 and issuing new senior unsecured notes of $200.0 million due 2044 and $55.0 million due 2054 at 5.0% and 5.25%, respectively. Costs associated with the refinancing of debt in the third quarter of 2018 totaled $14.8 million. In addition, the Company entered into certain cross currency swaps in 2018, which effectively swaps the Company's U.S. denominated debt for euro and Danish kroner debt at lower interest rates that resulted in lower interest expense. Interest income was lower in the first three quarters of 2019, as compared to 2018, due to having less cash on hand to invest.

Other Income/Expenses

The change in other income/expenses in the third quarter of 2019, as compared to 2018, was due to the change in valuation of deferred compensation assets which resulted in less other income of $0.7 million. On a year-to-date basis, deferred compensation assets resulted in additional other income of $3.6 million. The change related to deferred compensation assets are offset by an opposite change of the same amount in SG&A expense. The remaining change was due to fluctuations in foreign currency transaction gains/losses.

Income Tax Expense
    
Our effective income tax rate in the third quarter and first three quarters of 2019 was 24.5% and 24.7%, compared to 56.5% and 30.5% in the third quarter and first three quarters of 2018. The decrease in effective tax rate results from the impairment of goodwill and trade name of the Offshore business that are not tax deductible and restructuring activities recognized in 2018.


Earnings attributable to noncontrolling interests was lower in the third quarter and first three quarters of 2019, as compared to 2018, due to lower earnings of certain less than 100%-owned subsidiaries.

Cash Flows from Operations
 
Our cash flows provided by operations was $239.2 million in the first three quarters of fiscal 2019, as compared with $68.1 million provided by operations in the first three quarters of 2018. The increase in operating cash flow in the first three quarters of 2019, as compared with 2018, was due to improved working capital management. The lower working capital is primarily attributed to a larger liability for customer billings in excess of costs and earnings (accrued expenses). This was partially offset by the 2019 Delta pension plan contribution (the 2018 annual payment was contributed early in December 2017) which is a use of cash flows from operations.

ESS segment
The increase in sales in the third quarter and first three quarters of 2019, as compared with the same periods in 2018, was due to sales volume increase, higher sales prices, and recent acquisitions. The sales increase was partially offset by $5.8 million and $24.8 million of unfavorable currency translation effects, respectively.
Global lighting and traffic, and highway safety product sales in the third quarter and first three quarters of 2019 was higher by $8.1 million and $7.5 million, as compared to the same periods in fiscal 2018. In the third quarter and first three quarters of 2019, as compared to the same periods in 2018, sales pricing improved in North America across commercial and transportation markets and volume increased. Lower sales volumes mainly due to the ceasing of operations in Morocco and unfavorable currency translation effects contributed to lower sales in Europe. Highway safety product sales volumes decreased in the third quarter and first three quarters of 2019, as compared to 2018, due primarily to a slowdown in government spending in Australia and India.
Communication product line sales were higher by $12.4 million and $29.0 million in the third quarter and first three quarters of 2019, as compared with 2018. In North America, component and structure sales volumes increased in the third quarter and first three quarters of 2019 due to higher demand from the network expansion by providers and the sales

44


contribution from the acquisition of Larson Camouflage and Connect-It. In Asia-Pacific, sales volumes decreased due to lower demand in China and Australia.
Access Systems product line net sales decreased in the third quarter and first three quarters of 2019, as compared to 2018, by $4.0 million and $6.6 million, respectively. Sales volume declines and unfavorable foreign currency translation for the Australia business drove the decrease in sales.
Gross profit, as a percentage of sales, and operating income for the segment were higher in the third quarter and first three quarters of 2019, as compared to 2018, due to improved sales pricing, restructuring costs incurred in 2018, and recent acquisitions. These improvements in profitability were partially offset in the third quarter of 2019 by an approximately $7 million loss recognized on certain access systems projects. SG&A spending was lower in the third quarter and first three quarters of 2019 due to foreign currency translation effects, restructuring costs incurred in 2018 and benefits realized in 2019 related to those activities. The SG&A expenses from acquisitions completed in the previous twelve months partially offset the decrease in SG&A in 2019. In the third quarter and first three quarters of 2018, the segment incurred $3.4 million and $8.0 million of restructuring costs within product cost of sales and $2.3 million and $6.8 million within SG&A expenses, respectively.
Utility segment
In the Utility segment, sales decreased in the third quarter of 2019, as compared with 2018, due to lower volumes and currency translation effects that were partially offset by an increase in average sales prices. Most of our sales contracts in North America contain provisions that tie the sales price to published steel index pricing at the time our customer issues their purchase order. Specific to North America, the average sales price increase was partially offset by lower sales volumes for steel utility structures; concrete utility structure sales volumes were higher in the third quarter and first three quarters of 2019, as compared to the same periods in 2018 due to good demand. The 2018 acquisitions of Convert and Derit contributed $43.9 million of sales increases in the first three quarters of 2019, as compared with 2018.
Offshore and other complex structures sales decreased in the third quarter 2019, as compared to 2018, due to lower volumes and unfavorable currency translation effects. Sales were flat on a year-to-date basis due to higher volumes that were offset by less favorable sales pricing and currency translation effects.
Gross profit increased in the third quarter and first three quarters of 2019, as compared to 2018, due to recent acquisitions and improved sales mix and pricing for the North America utility business. The increase in gross profit for the first three quarters of 2019, as compared to 2018, was partially offset by $3.0 million of second quarter 2019 inspection costs to finalize the requirements from a 2015 commercial settlement. SG&A expense was lower in the third quarter and first three quarters of 2019, as compared with 2018, due to the 2018 goodwill and trade name impairment of the Offshore business of $15.8 million, expenses of Derit and Convert and higher sales commissions. Excluding the goodwill and trade name impairment and inspection costs, operating income increased in the third quarter and first three quarters of 2019 due to improved sales mix and pricing in North America and restructuring activities undertaken in 2018.     
Coatings segment
Coatings segment sales increased in the third quarter and first three quarters of 2019, as compared to the same periods in 2018, due to higher sales prices and recent acquisitions. Sales volume demand decreased in North America in the third quarter and first three quarters of 2019, as compared to 2018, but was more than offset by price actions and revenue contributions from the United acquisition. In the Asia-Pacific region, the acquisition of Derit and CSP Coatings and price increases to recover zinc cost increases drove improved sales in the third quarter and first three quarters of 2019.
SG&A expense was higher in the third quarter and first three quarters of 2019, as compared to 2018, due to SG&A expenses of recent acquisitions and approximately $3.0 million of one-time expenses associated with a legal settlement in the second quarter of 2019. Operating income was lower in the third quarter and first three quarters of 2019, compared to the same periods in 2018, due to volume decreases globally and non-recurring legal expenses. The decrease was partially offset by contributions from the acquisition of United and CSP Coatings and improved sales pricing.
Irrigation segment
The increase in Irrigation segment net sales in the third quarter of 2019, as compared to 2018, is primarily due to sales volume increases in North America. On a year-to-date basis, the decrease in Irrigation segment net sales is due to lower sales volumes in North America and international markets and unfavorable currency translation effects, partially offset by improved sales pricing. Continued low commodity prices and uncertainty around trade disputes with China caused growers to

45


delay irrigation purchases. However, sales of technology-related products and services continue to grow, as growers are increasing adoption of technology to reduce costs and enhance profitability. International sales volumes of irrigation and service parts decreased in the third quarter and first three quarters of 2019, as compared to the same periods in 2018, due to reduced volumes and unfavorable currency translation effects.
SG&A was higher in the third quarter and the first three quarters of 2019, as compared to 2018, due to 2018 acquisitions and higher product development expenses. Operating income for the segment decreased in the third quarter and first three quarters of 2019 over the same periods in 2018, due to lower tubing and international irrigation sales volumes and associated operating deleverage of fixed factory and SG&A costs.
Other
At the end of April 2018, the Company completed the sale of Donhad, a mining consumable business with operations in Australia. There are no remaining businesses recorded within Other.
LIFO expense
Unit costs of raw materials in the U.S. decreased in the first three quarters of 2019, as compared to the end of 2018, resulting in a LIFO benefit during 2019. In the first three quarters of 2018, unit costs of raw materials in the U.S. increased, as compared to the end of 2017, resulting in LIFO expense in 2018.
Net corporate expense
Corporate SG&A expense in the third quarter of 2019 approximated the amount recognized in the same quarter of 2018. Corporate SG&A expense was higher in the first three quarters of 2019, as compared to the same period in 2018, due to $3.6 million of increased appreciation of deferred compensation plan assets. The increase in deferred compensation plan assets is offset by the same amount in other income/expenses.
Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $857.5 million at September 28, 2019, as compared to $931.6 million at December 29, 2018. The decrease in net working capital in 2019 is attributed to higher accrued expenses primarily due to a higher balance in customer billings in excess of costs and earnings. Cash flow provided by operations was $239.2 million in the first three quarters of 2019, as compared with $68.1 million in first three quarters of 2018. The increase in operating cash flows in the first three quarters of 2019, as compared to 2018, was primarily the result of improved working capital management this year.
Investing Cash Flows-Capital spending in the first three quarters of fiscal 2019 was $72.0 million, as compared to $48.9 million for the same period in 2018. The increase in investing cash outflows in the first three quarters of 2019, as compared to 2018, can be attributed to lower proceeds from the sale of assets due to the sale of our mining consumable business in 2018. Capital spending projects in 2019 and 2018 related to certain facility expansions and investments in machinery and equipment across all businesses. We expect our capital spending for the 2019 fiscal year to be approximately $90 to $100 million.
Financing Cash Flows-Our total interest‑bearing debt was $784.6 million at September 28, 2019 and $753.3 at December 29, 2018. Financing cash flows changed from an outflow of $136.7 million in the first three quarters of 2018 to an outflow of $82.7 million for the first three quarters of 2019. The decrease in financing cash outflows in the first three quarters of 2019, as compared to 2018, was due to higher net borrowings and lower purchases of treasury shares under our share repurchase program in 2019.
Financing and Capital
The Board of Directors authorized the purchase of $250 million of the Company's shares without an expiration date in October 2018. The share purchases will be funded from available working capital and short-term borrowings and will be made subject to market and economic conditions. We are not obligated to make any share repurchases under the share repurchase program and we may discontinue the share repurchase program at any time. We acquired 126,734 treasury shares

46


for approximately $16.8 million under our share repurchase program during the third quarter of 2019. As of September 28, 2019, we have approximately $212.2 million open under this authorization to repurchase shares in the future.
Our capital allocation philosophy announcement included our intention to manage our capital structure to maintain our investment grade debt rating. Our most recent ratings were Baa3 by Moody's Investors Services, Inc., BBB- rating by Fitch Rating Services, and BBB+ rating by Standard and Poor's Rating Services. We expect to maintain a leverage ratio which will support our current investment grade debt rating.

Our debt financing at September 28, 2019 is primarily long-term debt consisting of:
•
$450 million face value ($436.3 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044.
•
$305 million face value ($297.5 million carrying value) of unsecured notes that bear interest at 5.25% per annum and are due in October 2054.
•
We are allowed to repurchase the notes at specified prepayment premiums. Both tranches of these notes are guaranteed by certain of our subsidiaries.

At September 28, 2019 and December 29, 2018, we had $28.4 million and $5.7 million outstanding borrowings under our revolving credit agreement, respectively. The revolving credit agreement contains certain financial covenants that may limit our additional borrowing capability under the agreement. At September 28, 2019, we had the ability to borrow $557.0 million under this facility, after consideration of standby letters of credit of $14.6 million associated with certain insurance obligations and international sales commitments. We also maintain certain short-term bank lines of credit totaling $131.3 million, $112.0 million of which was unused at September 28, 2019.

Our senior unsecured notes and revolving credit agreement each contain cross-default provisions which permit the acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of such other indebtedness.
The debt agreements contain covenants that require us to maintain certain coverage ratios and may limit us with respect to certain business activities, including capital expenditures. The debt agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired business. The debt agreements also provide for an adjustment to EBITDA, subject to certain limitations, for non-cash charges or gains that are non-recurring in nature.
Our key debt covenants are as follows:
•
Leverage ratio - Interest-bearing debt is not to exceed 3.5X Adjusted EBITDA (or 3.75X Adjusted EBITDA after certain material acquisitions) of the prior four quarters; and
•
Interest earned ratio - Adjusted EBITDA over the prior four quarters must be at least 2.5X our interest expense over the same period.

At September 28, 2019, we were in compliance with all covenants related to the debt agreements. The key covenant calculations at September 28, 2019 were as follows (in 000's):

Interest-bearing debt
$
784,593

Adjusted EBITDA-last four quarters
327,014

Leverage ratio
2.40

 
 
Adjusted EBITDA-last four quarters
$
327,014

Interest expense-last four quarters
40,389

Interest earned ratio
8.10


47


The calculation of Adjusted EBITDA-last four quarters (September 30, 2018 through September 28, 2019) is as follows. The last four quarters information ended September 28, 2019 is calculated by taking the full fiscal year ended December 29, 2018, subtracting the first three quarters ended September 29, 2018, and adding the first three quarters ended September 28, 2019.
Net cash flows from operations
$
324,185

Interest expense
40,389

Income tax expense
47,258

Impairment of property, plant and equipment
(803
)
Gain on investment
48

Deferred income tax benefit
(4,625
)
Noncontrolling interest
(4,534
)
Stock-based compensation
(11,205
)
Pension plan expense
920

Contribution to pension plan
17,408

Changes in assets and liabilities
(104,815
)
Other
338

EBITDA
304,564

Cash restructuring expenses
15,566

EBITDA from acquisitions (months not owned)
2,411

Impairment of property, plant and equipment
4,473

Adjusted EBITDA
$
327,014

Net earnings attributable to Valmont Industries, Inc.
$
135,684

Interest expense
40,389

Income tax expense
47,258

Depreciation and amortization expense
81,233

EBITDA
304,564

Cash restructuring expenses
15,566

EBITDA from acquisitions (months not owned)
2,411

Impairment of property, plant, and equipment
4,473

Adjusted EBITDA
$
327,014

Our businesses are cyclical, but we have diversity in our markets from a product, customer and a geographical standpoint. We have demonstrated the ability to effectively manage through business cycles and maintain liquidity. We have consistently generated operating cash flows in excess of our capital expenditures. Based on our available credit facilities, recent issuance of senior unsecured notes and our history of positive operational cash flows, we believe that we have adequate liquidity to meet our needs.
At the end of the third quarter of 2019, the unremitted foreign earnings were approximately $312.3 million as a result of dividends that were paid. While the tax on these foreign earnings resulted in the reduction of the excess of the amount for financial reporting over the tax basis in our foreign subsidiaries, an actual repatriation from our non-U.S. subsidiaries may still be subject to foreign withholding taxes and U.S. state income taxes. Our earnings in our non-U.S. subsidiaries are not indefinitely reinvested. Of our cash balances of $327.2 million at September 28, 2019, approximately $139.0 million is held in our non-U.S. subsidiaries. We recorded deferred income taxes for foreign withholding taxes and U.S. state income taxes of $3.3 million and $0.6 million, respectively.

Financial Obligations and Financial Commitments
There have been no material changes to our financial obligations and financial commitments as described on page 34-35 in our Form 10-K for the fiscal year ended December 29, 2018.

48


Off Balance Sheet Arrangements
There have been no changes in our off balance sheet arrangements as described on page 35 in our Form 10-K for the fiscal year ended December 29, 2018.
Critical Accounting Policies
There were no changes in our critical accounting policies as described on pages 37-40 in our Form 10-K for the fiscal year ended December 29, 2018 during the nine months ended September 28, 2019.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the company's market risk during the quarter ended September 28, 2019. For additional information, refer to the section "Risk Management" in our Form 10-K for the fiscal year ended December 29, 2018.

Item 4. Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 is (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
No changes in the Company's internal control over financial reporting occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


49



PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities
Period
 
Total Number of
Shares Purchased
 
Average Price
paid per share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
 
Approximate Dollar Value of Maximum Number of Shares that may yet be Purchased under the Program (1)
June 30, 2019 to July 27, 2019
30,430

 
$
127.78

 
37,375

 
$
225,128,000

July 28, 2019 to August 31, 2019
56,178

 
132.28

 
153,791

 
217,697,000

September 1, 2019 to September 28, 2019
40,126

 
137.14

 
45,157

 
212,194,000

Total
126,734

 
$
132.74

 
236,323

 
$
212,194,000

(1) On May 13, 2014, we announced a new capital allocation philosophy which included a share repurchase program. Specifically, the Board of Directors authorized the purchase of up to $500 million of the Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. On February 24, 2015 and again on October 31, 2018, the Board of Directors authorized an additional purchase of up to $250 million of the Company's outstanding common stock with no stated expiration date. As of September 28, 2019, we have acquired 5,864,872 shares for approximately $787.8 million under this share repurchase program.



50


Item 6. Exhibits
(a)
Exhibits
Exhibit No.
 
Description
 
Section 302 Certificate of Chief Executive Officer
 
Section 302 Certificate of Chief Financial Officer
 
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
101
 
The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended September 28, 2019, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information.
104
 
Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)


51


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf and by the undersigned hereunto duly authorized.
 
VALMONT INDUSTRIES, INC.
(Registrant)
 
/s/ MARK C. JAKSICH
 
Mark C. Jaksich
Executive Vice President and Chief Financial Officer
Dated this 31st day of October, 2019.


























52